Will Italy’s COVID Support Package Be Enough to Help its Economy Recover?

Matt Snape

Italian Prime Minister Giuseppe Conte is facing pressure to act swiftly after hundreds of people protested in towns and cities across the nation on Monday night against lockdown restrictions. These restrictions include the 6 p.m. closure of bars and restaurants and the complete closure of gyms, swimming pools, cinemas, and theaters.

Business owners held another demonstration outside the Italian Parliament on Tuesday and more are planned in the coming days.

Conte is facing pressure on two fronts: members of his ruling coalition and opposition parties are urging him to ease the restrictions, even as scientists warn that they might not be enough to combat escalating coronavirus infections.

The rescue package is worth approximately €5 billion and will help all businesses and workers affected by the measures.

Government Support Packages are Not the Only Answer

Government support packages only provide short-term economic relief. As Paul Johnson argues for the Institute for Fiscal Studies, subsidy schemes can support the wages and living standards of a lot of people, but economic shocks can have permanent effects because there are jobs and businesses that cannot be saved in the long-term. It can take a long time for new ones to appear.

Furthermore, Italy’s slow and obstructive bureaucratic system caused companies to wait months to receive funding. According to The Guardian, many workers are still waiting for payments owed as part of Italy’s original support scheme. If Italy is to move forward once the COVID-19 crisis is over, then it is clear that Italy’s bureaucracy needs rapid and significant reform in the near future.

Italian Politicians Need More Imaginative Solutions

But Italian politicians need more imaginative solutions to solve their country’s long-term economic problems once the lockdown is over. Desmond Lachman, a resident fellow at the American Enterprise Institute, wrote in The Hill that Italy’s prospects of a quick post-coronavirus economic recovery are slim. Whilst the country is stuck in the single currency, it does not have its own monetary or exchange rate policy to jump-start its economy.

Italy’s exit from the eurozone could become a reality in the future. According to a survey by the Tecné Agency, 49 percent of Italians are in favor of withdrawal from the EU. Politico‘s Joseph Stiglitz said quitting the eurozone will benefit the Italian economy by providing politicians with control over interest and exchange rates. It also means that they can devalue their own currency, something that the eurozone prevents them doing right now. However, Italy will have to wait for the outcome of the next general election before it quits the eurozone. There are other measures Italian politicians can implement in the near future.

Startups Will Play a Vital Role in Boosting Italy’s Economic Growth

Dimitri B. Papadimitriou et al of The Levy Economics Institute said that the Italian public sector should increase the number of workers by about 40 percent. They would like that to be paid for by increasing taxes on the wealthy. Yet such a measure would more than likely push Italy’s wealth creators out of the country at a time when they really need them. The evidence that increasing taxes on the wealthy boosts tax revenues is also pretty inadequate. Italy already has a €29.3 billion deficit and throwing more money at the public sector will add to that debt.

The Italian Government should encourage more startups to relocate to the South of Italy. EU-Startups suggests that 2,200 innovative startups were created in the South at the end of 2019. Michelantonio Trizio, the CTO of Scotty.Expert, a business that connects first-line workers with remote experts through augmented reality, told EU-Startups that Italy’s lockdown nullifies the competitive advantage of being in a region with a bigger concentration of companies and potential customers. Therefore, startups are likely to play a vital role in boosting Italy’s economic growth in the future.

Italy needs to look beyond stimulus packages to rescue its economy post-COVID-19. Instead, future Italian governments need to get serious about leaving the eurozone in an orderly manner, reforming Italy’s tired bureaucracy and encouraging more start-ups. Italy may then start to witness levels of growth it enjoyed before joining the euro.