The old year said goodbye in a fitting way: with oomph. After ten months in which the country ruled by Mario Draghi surprised itself and the world, Italy’s economy stunned again in December with unshakable optimism. Price shocks on the energy markets, disrupted supply chains, shortages of chips, staff absences caused by pandemics? Everything really bad. The industrial purchasing managers’ index (EMI), which is regarded as a particularly informative economic barometer, has risen for the 18th month in a row – to 62 points, which also points to a strong increase in industrial production in the near future. The expectations of the analysts were again exceeded. The economic index of the euro zone too. Industry, Italy’s locomotive of the year 2021, remains in motion.
From a sick man in Europe to an admired star – many are enthusiastic about the rise
The unprecedented momentum also delights established world market leaders. Italy has never grown so strongly, says Alberto Bombassei, who with his company Brembo in Bergamo supplies the upscale horsepower industry with brakes. The government raised its forecast for 2021 every month. Now the plus of 6.3 percent, which was already celebrated as a sensation, is to be exceeded. It should be noted that behind Italy are two decades of stagnation. We are also at the forefront when it comes to vaccinations, says the 81-year-old. And the British Economist named Italy Country of the Year 2021. The reason: It has changed more than any other. From the sick man of Europe to the admired star – the rise also inspires Bombassei. One can now face foreigners without inferiority complexes. “At my age I would never have thought that I would experience such achievements in Italy,” says the successful entrepreneur. “We have to ride this wave now,” he warns. You wouldn’t get a chance like this a second time.
What is meant is the opportunity to fundamentally reshape the crisis country. Former ECB boss Draghi took over the business of government on February 13th in order to get this total transformation of the Italian economy off the ground. 191 billion euros of European development aid are intended to support the change.
How long can such a miracle last?
In Milan, the stock exchange continues to soar in the first few days of the year. In 2021, the Ftse Mib price index rose by 23 percent. The Dax in Frankfurt rose by almost 16 percent. At the beginning of the new stock market year, the Milan price index then jumped over the mark of 28,000 points, a level that has not been reached in more than ten years. “I did not expect such an increase,” says Carlo Gentili, co-founder of the Milan-based asset manager Nextam Partners. “The Draghi miracle was added to the strong economic recovery,” he says. But the question now is: how long can such a miracle last?
Some say: This magical state of emergency in Italy is long over.
When the former head of the ECB took over the helm in Rome ten months ago, he effortlessly succeeded in taming the failed parties in his broad coalition. Draghi let everyone wave “their flag” and then simply ignored the bickering. He did not enter into discussions and made his bold decisions alone. The “Draghi Method” worked. By the fall, the Italy savior appeared to be the invincible matador of the exhausted populists. Then the working mechanism began to jam. “We are experiencing a decline in reform zeal,” industrialist Carlo Bonomi sounded the alarm in November. Politicians are increasingly distracted by election dates, he said.
The budget law, which passed the last parliamentary hurdle after Christmas, disappointed expectations. Instead of a targeted financial policy, the parties adopted a budget peppered with all kinds of financial contributions. An urgent competition law, the revision of the cadastral values, the abolition of early pensions and the start of a major tax reform also had a surprisingly indecisive effect.
At the turn of the year the mood changed drastically. Collective confidence and complacency evaporated within a few days. The positive spirit was overwhelmed by the coronavirus variant Omikron, which is rampant worldwide. With a delay, Omikron is now spreading at breakneck speed in the model country of fighting pandemics. 810,000 cases of infection were reported in one week.
Italy’s Prime Minister Mario Draghi.
(Photo: Oliver Weiken / dpa)
A special Roman variant called Quirinal changed the initial situation just as radically: the imminent election of the successor to the outgoing President Sergio Mattarella, who will leave the Quirinal Palace in February. On January 24th, the chambers of parliament meet to elect a new head of state. And so the comeback of Italy was followed by the comeback of the parties. After entrusting themselves to Draghi’s competence and reputation in 2021, the coalition partners are now fighting to regain their lost power. With success.
Draghi also failed at the second attempt to enforce a general vaccination requirement. On Wednesday evening, like last week, he had to give in to the resistance of the populist League and the five stars. After a tough struggle, the cabinet decided to introduce a general compulsory vaccination for all over-50s. The compromise was sold as a measure unique in Europe. Italian scientists castigated them as “warm wraps” that Omikron could not stop. The political judgment was more devastating. “The parties did what they thought they could best: wear down the government in the name of the return of politics,” commented the Turin newspaper La Stampa. For the first time, Draghi saw the terminus where all Roman governments sooner or later land. It sounded like the swan song for an era.
The debt ratio should decrease
But what an era! Right at the end of the year, Italy completed the reforms stipulated by Brussels and fulfilled all 51 tasks of the EU Commission. The Ministry of Finance was able to apply for the first tranche of 24.1 billion euros from the European Corona rescue fund before New Year’s Eve. The upswing also hit the labor market in 2021. The companies programmed 1.2 million new hires by the end of March. The debt ratio, which rose sharply during the pandemic, is expected to fall by 4.1 percentage points to 149.4 percent this year.
These achievements are in jeopardy. Draghi wants to protect growth at all costs from the wave of contagion and a new lockdown. For Italy, it’s not just about preventing its economic engine from derailing. The upswing is the basis for the restructuring of the Italian economic system. The employers’ associations and the trade unions have therefore unanimously called for the introduction of a general vaccination requirement since last August. But in Draghi’s coalition, the lobby of the 2.5 million unvaccinated workers opposed it. The biggest threat to Italy’s rise continues to come from the pandemic, says finance professional Gentili. Politics have to be added to this. “In case it goes in the wrong direction,” he says.