Economic Policy in a Global Crisis: Did Italy Get It Right?

The paper first discusses why the financial crisis affected only marginally the Italian financial system, and how the real crisis was transmitted to Europe and to Italy. In a second part, the paper examines in detail the response of the Italian government to the crisis. The evaluation of the response is that: (i) In order to get out of the recession, there was little that Italy could do by itself, especially in terms of short-run policies, as its monetary and exchange rate policy are set by the ECB, and the fiscal policy is effectively blocked by the enormous debt. (ii) Moreover, Italy's ability to reform is hindered by the lack of social and policy consensus, and by the deterioration of the climate for public and policy debates. Accordingly, the policy choice has been not to fight the recession head on, but only to minimize some of its social costs. Within these limits, results have been positive, but they are qualitatively insufficient to promote a more sustained recovery and to re-activate a growth process, the engines of which have been silent for quite some time. One possible outcome is that Italy is likely to remain a country in relative decline even in the aftermath of the crisis.