Basket case Britain can only envy Meloni’s Italy

EU money and a stable government is bringing la dolce vita to the once-volatile economy

Here’s a remarkable fact. One of the strongest growing economies in the G7 since 2019, and by far the strongest growing of the major economies in Europe is, of all countries, Italy.

Still widely seen as one of Europe’s most sickly economies, and occasionally described as a complete basket case by Anglo-saxon commentators, Italy was particularly badly hit by the pandemic and subsequent energy price shock, but has since been recovering fast – much faster, in fact, than all its major peers.

Unlike all the others, moreover, Italy is enjoying strong per capita growth, the measure that really matters as a gauge of whether citizens are getting richer or not. After decades of stagnation, real GDP per head is nearly 5pc higher today than it was before the pandemic, far outstripping Germany, France, the UK and Spain. There has got to be some upside from the shrinking population that Italy’s very low birth rate has given rise to, and this is it. Again, unlike all the others, Italy has relatively low levels of net immigration, hard though it is to believe given the political noise that the migrant issue continues to generate there.

Italy is at the sharp end of Europe’s unauthorised migration problem, with many of the small boat crossings from North Africa arriving on its shores. Legal migration is on the other hand very low by European standards.

Two or three years of relatively strong growth do not a summer make; we should be careful not to jump to conclusions about some kind of economic transformation in the making. Many commentators see the current growth spurt as no more than a flash in the pan, explained primarily by Italy’s outsized share of the European Union’s Nextgenerationeu post-pandemic recovery fund.

Italy managed to lay claim to a substantial proportion of this stimulus, which across the EU as a whole is worth around €750bn (£645bn) in grants and loans, and has already deployed some 20pc of its allocation. The fund’s perhaps most totemic project, though one that has yet to get off the ground, is the long dreamt of Strait of Messina bridge, which would link mainland Italy with Sicily via the longest suspension bridge in the world.

In any case, the current infrastructure boom cannot be kept going indefinitely. Eventually, the money will run out. Sceptics insist that Italy’s economic acceleration will soon outrun itself, with the same sorry state of stagnation that characterised the first two decades of euro membership fast re-establishing itself. Maybe so, but there are a number of reasons for believing that this seeming one-time wreck of an economy has indeed turned the corner.

Italy’s example, moreover, may hold lessons for our own becalmed economy here in the UK. It’s hard for Britain’s warring political factions to admit, but we seem almost to have become Italy ourselves, only without the sun and la dolce vita; the relative stability and predictability for which the UK used to be known has given way to the same sense of chaos and confusion that used to be the Italian hallmark.

Structurally, Italy is a very different economy from Britain, with a north/ south divide that makes Britain’s version of the same thing look mild by comparison and an economic backbone of relatively small, often family-run manufacturing businesses that are as much a weakness as a strength.

From an economic perspective, Italy’s northern provinces have more in common with Bavaria, Austria and Switzerland than they do its deprived southern regions. Income per head is twice as high in Lombardy as it is in Calabria, a difference as extreme as that between Germany and Greece.

The two provinces might indeed be different countries. Yet Italy’s greatest weakness has long been not its inequalities, its apparently mountainous public debts, its byzantine protections, its tax-evading citizens or its never-ending insolvency procedures, but its politics. And these have most assuredly changed with the election of Giorgia Meloni as prime minister a little while back. “Our biggest problem in Italy has been political instability”, says Valerio De Molli, chief executive of the European House Ambrosetti, a Milan-based consultancy and think tank. “We’ve had 16 governments in 20 years – almost one a year, some of them technocratic and therefore lacking in democratic legitimacy – which has created constant discontinuity in economic policy and acted as a major deterrent to foreign direct investment”. Does this sound familiar? We might not have had so many governments, but here in Britain we’ve had five prime ministers in eight years, soon to be six – one of them lasting just 49 days – and seven chancellors.

Policy has lurched violently from one extreme and disaster to the next. Far from giving Britain back its sense of purpose, unity and self confidence, Brexit has profoundly undermined all three, and we are now faced with an economy which seems as hopelessly stuck in time as Italy’s ever was during its long years of revolving-door government.

Italy’s Meloni does, of course, face equally daunting challenges as she fights her way back to a more dynamic economy, but so far this self-confessed admirer of Benito Mussolini has confounded her critics with a pragmatically-minded approach to government which seems to be the very antithesis of the populist roots from which she springs.

She’s cancelled the so-called “basic income of citizenship”, which was acting as a deterrent to finding a job; she’s rowed back from windfall profit taxes on the banks; and, despite once strongly-held eurosceptic and proputin views within her party, she’s fallen into line with the rest of Europe on Ukraine and broadly gone along

‘Far from giving Britain back its purpose, unity and self-confidence, Brexit has undermined all three’

with the reform agenda that was a condition of the EU’S stimulus funds.

Just as important, says Ambrosetti’s De Molli, she’s got democratic legitimacy, in contrast to some of Italy’s previous, technocratic governments, and faces a hopelessly divided opposition incapable of thwarting her.

Historically the very foundation of European civilisation, Italy still has lots of economic strengths. Hidden beneath one of the highest debt-to-gdp ratios in the world is an abundance of family and corporate wealth, together with among the highest property ownership in Europe. Davide Serra, one of Italy’s most prominent entrepreneurial financiers, once told me that, if you could marry the Anglo-saxon notion of fiduciary duty with the Italian sense of loyalty to family and tribe, you would have the perfect economy.

That’s perhaps never to be, but the way things are going the Italian press will again soon be able to shout “il sorpasso” (the overtaking), much as it did in 1987, and then for a second time in 2009 when, thanks largely to exchange rate movements, the Italian economy briefly became bigger in nominal terms than its UK equivalent.

Political stability and policy certainty isn’t everything, but it is a vital constituent of any healthy economy. It’s odd to have to concede that Italy finally seems to have more of it than we do.