Italy needs more than just one Cornetto 

Nick Hood, September 2011

The name of Venice’s airport prepares visitors nicely for the impracticalities of getting around one of the world’s most charismatic cities.  Surely Marco Polo must have faced as many obstacles on the Silk Road as unwary tourists here, from marauding brigands (for which read touts for the wildly expensive cafes and restaurants in the Piazza San Marco) and local warlords exacting a high tariff for safe passage (the €110 water taxi ride into the City). 

But set aside these irritations and ignore the gargantuan cruise liners towering many stories higher than all of Venice’s elegant buildings, except the magnificent churches, and the reward is to be transported into a magical world, made magnificent by the artistic glories of the Renaissance.  Every vista is a latter day Canaletto backdrop. 

Unfortunately, Italian politics are still rooted in the murky machinations of that bygone era, with Bunga Bunga parties the modern equivalent of a Roman orgy, or indeed a night out with the Borgias.  No amount of super profits skimmed off unsuspecting tourists is likely to restore faith in the ability of the dysfunctional coalition government to steer Italy round the mountain of €380bn of government debt it needs to raise by the end of 2012 or to reduce Italy’s public debt ratio from the present level of 120% of GDP, second only in the Eurozone to Greece’s 150%. 

Worries abound about the banking sector, despite talk of the counter balancing effect of Italy’s vast private wealth lodged with it, estimated at €8,600bn.  Reality suggests that this source of comfort may prove more mobile and less reliable than the savings of poor Chinese who underwrite the rampant bad lending of the PRC’s banks.  Especially, when those more sophisticated depositors realise the implications of Standard & Poor downgrading seven Italian banks as well as the state itself.

GDP growth forecasts have been slashed to 0.7% for 2011, slowing to 0.6% in 2012 before recovering to a still marginal 0.9% in 2013.  Venice’s gondolas move faster than that, despite their ballast of overweight tourists.  Who knows what the latest €54.2bn austerity programme may do to this pathetic progress, assuming the political will or administrative ability to deliver these savings. 

Italy has deep structural problems beyond the poor growth outlook, with just over half of its unemployed out of work for over a year.  The issues have their roots in the 1960s, since when there have been poor levels of investment, a reliance on imported technology and a worrying dependence among mid-sized corporates on internationally-generated growth.  A policy of making the labour market flexible led to a collapse in productivity and a move to casual rather than permanent employment, a trend which is gathering pace in the current crisis.

So maybe the colour of the squid ink in a delectable plate of gnocchi al gusto di nero di seppia at the charming Trattoria Altanella really was a portent for the storm clouds gathering over Italy’s economy.  Too big to fail?  Maybe not, but the portion was certainly too big to eat.