Nick Hood is surprised to find Rome relatively unscathed by the global recession, despite its past mistakes.
Italy was pilloried for its crony capitalism back in the boom, but now - despite having failed to report a budget surplus for over a quarter of a century - it is sitting relatively comfortably amid the government finance carnage in Euroland. Rome in late Spring showed little sign of the recession.
For sure, Fiumicino airport seemed relatively quiet, and Alitalia’s evening commuter flight home to London had empty seats, while the tourist hordes thronging the Pantheon were a little thinner than on previous visits. But pavement cafes in the Piazza Navona were bustling, as they dispensed sleep-repelling double espresso. And reservations were still needed at quality restaurants.
Talk to local professionals and bankers, and there is little sense of financial crisis. Their thoughts are focused much more on political interference in everything up to and including the judicial process - an unpleasant side-effect of Italy’s experiment with stable government.
Italy’s current government deficit is a mere 5% of GDP, within touching distance of the Eurozone’s much maligned Stability Pact norm of 3% and way below figures everywhere else in Southern Europe, and in allegedly more prosperous, stable economies such as the UK and the USA. Output has dropped sharply and unemployment is rising, but on a modest scale by comparison with, for example, Spain.
How has this miracle of recessionary rectitude happened, especially in the economy that apparently did everything wrong in the boom times? ABN Amro’s attempt to storm the Italian banking sector by buying Banca Atonveneta was blocked, as was the proposed sale of Alitalia to Air France-KLM. Now, it seems, this rejection of global markets turned out to be a major asset as the world’s financial system imploded.
Italy, the world’s eighth largest exporter, has another priceless advantage. Its iconic export brands, such as Ferrari, Maserati, Versace, Prada and Armani are focused in luxury markets, which have been surprisingly robust worldwide, while Fiat addresses the motor sector’s need for economy vehicles. A strong trade relationship with China has also helped.
The vibrant underground economy may also have played its part, as well as its largely protected core workforce. Counter-intuitively, these apparently negative factors have combined to provide a consumption buffer and smooth the unemployment shock felt elsewhere.
Not that everything is positive. The EU Commission has revised Italy’s growth forecasts downward, and government debt is already too high at 116%; it's expected to grow further in 2010 and 2011. Fiat is battling with its unions over the closure of a production plant in Southern Italy, a key part of a restructuring programme put to its bankers. Nevertheless, refinancing talks seem to be going well (although still at an early stage).
And Versace is in turnaround mode after a terrible 2009, when it posted a loss of €50m after revenues fell by 20%. It has been forced to expand its ranges to include outfits with broader appeal, after even Madonna and Penelope Cruz’s clothing budgets failed to pull it through the recession unscathed.
Still, it seems that the flame of relative prosperity will continue to burn strongly in the Eternal City - and there is no prospect that Italy will replace Ireland as the “I” in the PIGS acronym any time soon.
