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Italy’s Draghi may be facing his biggest-ever challenge with Italy’s economy

Long a laggard among European nations when it comes to economic growth, the Italian economy appeared poised for a modest economic recovery before the coronavirus pandemic hit a year ago.

The new Italian government headed by former European Central Bank Governor Mario Draghi has said that restarting economic growth is among its two main priorities, along with halting the spread of the coronavirus.

Up until now, Draghi is best known for promising to do “whatever it takes” as part of his efforts to save the euro currency from collapsing amid the global credit crunch in 2012. But analysts say that restarting Italy’s sluggish economy will be his biggest challenge yet.

“Italy’s economic problems are more endemic than the problems the euro faced in 2012,” Pietro Paganini, founder of Competere, a think tank, told Xinhua. “The consequences of failure may have been bigger with the euro, but now the challenge will be bigger.”

Italy’s economy was struggling even before it was dragged down by the impacts of the coronavirus pandemic. The Italian economy has not grown more than 2 percent in a single year since 2000, and the last time its annual economic growth rate surpassed that of the European Union as a whole was in 1995, according to historical data from the World Bank.

Before the coronavirus, the consensus estimates were that Italy’s economy would grow 0.5 to 1.0 percent in 2020 — a modest range that would have nonetheless been the country’s best annual growth rate since 2017. But instead, amid a series of national and regional lockdowns and the global economic slowdown, the country’s National Statistics Institute’s preliminary estimates are that the economy shrank by 8.8 percent in 2020.

Analysts said the biggest immediate challenge facing the country’s growth prospects came from the pandemic. But the actions taken now will determine how quickly the economy starts growing once the impacts of the pandemic have waned.

According to Valentina Meliciani, a professor of applied economics and Rome’s LUISS University, the top priorities will be spending the more than 200 billion euros (243 billion U.S. dollars) in European Union recovery funds as quickly and as effectively as possible.

“Italy needs the same structural reforms it needed before the pandemic, but that is a long-term project,” Meliciani told Xinhua. “In the near term, the recovery funds can help jump-start growth if they are used well.”

Vincenzo Comito, an economist and author specializing in challenges facing modern economies, told Xinhua that the best use of the recovery funds would include investments to close the growing “digital divide” — the term refers to the gap between countries able to benefit from high-tech advances and those that cannot — between Italy and other industrialized Western nations.

Meliciani agreed by stressing the need to “look for synergies” between digital priorities and those tied to sustainable and environmentally-friendly development.

Other priorities mentioned by Paganini, Meliciani, and Comito include reforms of the country’s public administration and the justice system, plus efforts to cut down on bureaucracy and to streamline the tax system.

One thing working in the government’s favor, the analysts said, was Draghi, a non-political figure widely respected in Italy, across Europe, and even beyond.

“Draghi’s credibility will be valuable in making investors and leaders believe that his economic initiatives will work,” Meliciani said.
Source: Xinhua

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