A triumph of failed ideas European models of capitalism in ... - Journal

Italy: Chronicle of a crisis foretoldAnnamaria Simonazzi *1. IntroductionItaly has not been hit directly by the financial crisis, but the ensuingglobal recession has taken a heavy toll on the real economy, muchhigher than in other European countries. The poor shape of the Italianeconomy at the outbreak of the crisis provides a good part of theexplanation. This chapter sums up the main points of the analysisprovided in Simonazzi et al. (2009) (Section 1) and considers the effectsof the crisis on the major economic variables (Section 2). It argues thatthe crisis hit the Italian economy at a delicate time, in the midst of aprocess of restructuring. Given the high debt/GDP ratio, the drop ingrowth increased Italy’s financial vulnerability. When the second roundof the financial crisis hit the peripheral European countries of the Euroarea, the Italian government, burdened with a huge public debt, was lefthelpless to resist speculative attacks and to avert contagion. The manyweaknesses in the construction of the Economic and Monetary Union(EMU) and the dithering of European political leaders fuelleduncertainty, which wrecked the periphery and eventually engulfed Italy.Lacking any timely coordinated effort, austerity was the only optionopen to the periphery. By increasing taxes and cutting social spendingand financial transfers to local authorities, and therefore servicesprovision, fiscal austerity reached deep in the pockets of the usual‘ordinary people’. The chapter concludes with an assessment of analternative – national and European – policy for growth.* Financial support from the Italian Ministry for Universities and Scientific Research(MIUR) is gratefully acknowledged.A triumph of failed ideas – European models of capitalism in the crisis 183