The economic problems of Italy continue

We have become familiar with the economic problems which have beset Italy this century. First membership of the Euro was not the economic nirvana promised by some as the economy ony grew by around 1% per annum in what were good years for others. Then not only did the credit crunch  hit but it was quickly followed by the Euro area crisis which hit Italy hard in spite of the fact that it did not have the housing boom and bust that affected some of its Euro area colleagues. It did however not miss out on a banking crisis which the Italian establishment ignored for as long as it could and is still doing its best to look away from even now. This all means that the economic output or GDP ( Gross Domestic Product) of Italy is now pretty much the same as it was when Italy joined the Euro. If we move to a measure which looks at the individual experience which is GDP per capita we see that it has fallen by around 5% over that time frame as the same output is divided by a population which has grown.

There is an irony in this as looking forwards Italy has a demographic problem via its ageing population but so far importing a solution to this has led to few if any economic benefits. That may well be why the issue has hit the headlines recently as Italy struggles to deal with the consequences of the humanitarian crisis unfolding in and around the Mediterranean Sea. But we have found oursleves so often looking at an Italian economy which in many ways has lived up or if you prefer down to the description of “Girlfriend in a Coma”.

Good Times

One thing which has changed in Italy’s favour is the economic outlook for the Euro area itself. It was only last week that the President of the ECB Mario Draghi reminded us of this.

If one looks at the percentage of all sectors in all euro area countries that currently have positive growth, the figure stood at 84% in the first quarter of 2017, well above its historical average of 74%. Around 6.4 million jobs have been created in the euro area since the recovery began…… since January 2015 – that is, following the announcement of the expanded asset purchase programme (APP) – GDP has grown by 3.6% in the euro area.

This was backed up yesterday by the private sector business surveys conducted by Markit.

The rate of expansion in the eurozone manufacturing
sector accelerated to its fastest in over six years in
June, reflecting improved performances across
Germany, France, Italy, the Netherlands, Ireland,
Greece and Austria.

Later they went even further.

At current levels, the PMI is indicative of factory output growing at an annual rate of some 5%, which in turn indicates the goods producing sector will have made a strong positive contribution to second quarter economic growth.

Good news indeed and if we look in more detail at the manufacturing detail for Italy it looks to be sharing some of this.

Italian manufacturers recorded a strong end to the
second quarter, with output growth picking up on
the back of robust export orders……Survey evidence indicated that higher demand from
abroad was a principal driving factor, with new
export orders rising at the fastest pace for over two
years in June.

Ah export-led growth? Economists have had that as a nirvana for years and indeed decades albeit that of course not everyone can have it. But the situation described set a hopeful theme for economic growth in the quarter just past.

The Italian manufacturing sector continued its
recent solid performance into June. At 55.2, the
PMI remained below April’s recent peak (56.2), but
its average over the second quarter as a whole was
the best seen in more than six years.

There were even signs of hope for what has become a perennial Italian problem.

New staff were taken on during the month to help
deal with the additional production requirements
that resulted from new orders. The rate of job
creation remained strong by historical standards
despite easing to the weakest seen since January.

The Unemployment Conundrum

Here we found disappointment as yesterday’s release struck a different beat to the good times message elsewhere.

Unemployed were 2.927 million, +1.5% over the previous month…….. unemployment rate was 11.3%, +0.2
percentage points over the previous month, and inactivity rate was 34.8%, unchanged over April 2017.
Youth unemployment rate (aged 15-24) was 37.0%, +1.8 percentage points over the previous month and
youth unemployment ratio in the same age group was 9.4%, +0.4 percentage points in a month.

The data for May saw a disappointing rise in unemployment and an especially disappointing one in youth unemployment. If these are better times then a grim message is being sent to the youth of Italy with more than one in three out of work and even worse the number rising. With inactivity unchanged this meant that employment also disappointed.

In May 2017, 22.923 million persons were employed, -0.2% over April 2017…….Employment rate was 57.7%, -0.1 percentage points over April 2017, unemployment rate was 11.3%.

The annual data does show a fall of 0.3% in the unemployment rate over the past year but that compares poorly with the 0.9% decline in the Euro area in total. Of the European Union states Italy now has the third worst unemployment rate as Croatia has seen quite an improvement and in fact has one even higher than that in Cyprus. If we move to youth unemployment then frankly it is hard to see how a country with 37% youth unemployment can share the same currency as one with 6.7%, Germany?

The banks

There are continuing issues here as I note that there are rumours of some of the problem loans of Monte Paschi being sold. The problem with that is we have been told this so many times before! Then last night we were told this.

italian regional lender banca carige approved a capital increase of 500 million euros and asset sales of 200 million euros ( h/t @lemasebachthani)

This added to this from the end of last month.

DBRS Ratings Limited (DBRS) has today placed the BBB ratings on the obbligazioni bancarie garantite (OBG; the Italian legislative covered bonds) issued under the EUR 5,000,000,000 Banca Carige S.p.A. Covered Bonds Programme (Carige OBG1 or the Programme), guaranteed by Carige Covered Bond S.r.l., Under Review with Negative Implications. There are currently 20 series of Carige OBG1 outstanding under the Programme with a nominal amount of EUR 3.08 billion.

Today has seen an example of never believe anything until it is officially denied in the Financial Times.

One of the eurozone’s senior banking supervisors has defended her institution’s role in handling the failure of two Italian lenders but said her watchdog needed new tools to protect taxpayers better from bank failures.


Let us hope that these are indeed better times for the Italian economy and its people. However whilst the background gives us hope that it will be running with the engine of a Ferrari fears remain if we look at the banks and the employment data that it may instead be using the engine of a Fiat. It is hard not be a little shocked by this from the Telegraph.

Italy’s chronic unemployment problem has been thrown into sharp relief after 85,000 people applied for 30 jobs at a bank – nearly 3,000 candidates for each post.

The 30 junior jobs come with an annual salary of euros 28,000 ($41,000). The work is not glamorous – one duty is feeding cash into machines that can distinguish bank notes that are counterfeit or so worn out they should no longer be in circulation.

The Bank of Italy whittled down the applicants to a short-list of 8,000, all of them first-class graduates with a solid academic record behind them.



23 thoughts on “The economic problems of Italy continue

  1. “..whittled down the applicants to a short-list of 8,000, all of them first-class graduates with a solid academic record behind them….”

    for this job ?

    ” one duty is feeding cash into machines that can distinguish bank notes that are counterfeit or so worn out they should no longer be in circulation.”

    yet last week we saw Sweden boasting about all the electronic money taking physical cash out of the system ……

    Seems to me Italy has enough people , the issue is it doesn’t have enough jobs

    well paying jobs at that

    and its only going to get worse – more AI/automation

    I seem to remember back in the eighties it was easier for a grad to get a job as a dustman too….

    how things change but stay the same

    So whats the answer Shaun ?

    fake jobs ? or universal income ?


      • Hi Andrew,

        forgive me but isn’t that guarantee a kind of “fake” job?


        Ps : you posts are good with excellent details – so you have your own blog perhaps? ( sorry Shaun 😉 )

        • Thank you for the compliment, Forbin. I don’t, nor will I ever have, but I appreciate the opportunity to comment on Shaun’s excellent blogs. Yes, these jobs would certainly have the potential to be fake jobs, but Tcherneva would strongly deny that. She thinks that there are lots of socially useful tasks to perform for people who want to do them. Just yesterday I tried to link the new Bank of Canada series for exchange rates, which only start in January 2017, with the old ones, which go back in some cases to 1950. I linked at the month, which was the easiest thing to do but maybe not the best. I was too lazy to check. There are lots of other series that are the responsibility of StatCan that similarly could be linked to create longer more useful series for researchers but it isn’t done. Maybe Istat does a better job at this than StatCan (it wouldn’t be hard) but I suspect there is work like this to be done in their shop too. It would give a bright young economist an understanding both of linking procedures and of the history of Italian economic statistics and would generate a useful product. And it would be a lot more interesting than feeding bank notes into a machine.

    • I’ve seen plenty of ex colleagues applying for jobs way below their qualification/ability and NOT getting them! My conclusion is that prospective employers think the over qualified candidate won’t hang around for long before going to a better job leaving the employer to start the recruitment process over.

      • Actually, that is a very good point. We advertised for a receptionist last year and were inundated with graduate applications, but took someone on who was not for exactly that reason.

  2. For many years, at least 25, I have been observing politicians talking about increasing employment (reducing unemployment) and proposing various education and training schemes as a solution. And so we end up with the best educated dole queues in the World.

    • Good point and well made! Who on earth decided that 50% of people needed to be graduates without thinking through what that meant?
      It seems to me that:
      1. It has become a necessity where it wasn’t before (eg nursing) and
      2. Companies simply use other (arbitrary) filters. I know of one graduate who got a degree in natural sciences from a Russell Group university. He made the mistake of getting a 2.2, which destroyed his employability (almost all employers set a 2.1 as the interview prerequisite, apparently).
      But the Italian example is exactly your point – people wildly overeducated for the jobs available.

      • Knowledge economy James,based on masses of student debtors emerging intro a working world with declining real wages and houses at 10x salary

        • eheheheheh

          Knowledge economy

          buzz words dont you think Dutch ?

          I mean all jobs in “the cloud ” , har har , aptly named “cloud” of course , all vapor that evaporates away ….

          “big data” and “Knowledge economy ” don’t need that many people , all done by computers and soon all by AI bots .

          but yah declining to 3rd world wages with only debt , not wealth, to look forward to, and no where to drop out …..

          when the top .01% cannot sell their products to anyone because they have been squeezed out of the money economy , do you think they’ll notice ?


      • Totally agree. FWIW, the 50% target was an election sound bite by Tony Blair – it was the first his Civil Servants had heard of the plan and, as you observe, the main consequence is to drive up the minimum entry requirements of jobs that don’t necessarily require degree level education.

        In defence of the idea though, we can’t (don’t want to) compete on cheap labour costs so we need to educate ourselves better and serendipity says that the more well educated people there are, beavering away in various fields, the more likelihood that new businesses or inventions will be developed. I think the jury is out on whether this will work in practice.

        • I just hope that you’re right about creating new businesses and that this proves to be worth the undoubtedly horrid experience of many graduates being in debt with poor job prospects.

      • Hi James

        I wanted to reply to your nursing point as I have a friend who works in the NHS as a physio. He argues that the degree culture can make things worse as whilst it is good to have an education the new physios do not have the skills for the job such as back manipulation. He points out that you cannot talk a back better…

  3. 85,000 applicants for 30 posts in unskilled work. 37% youth unemployment.
    GDP no higher than when Italy joined the Euro, and 5% lower per person.
    I am amazed that there hasn’t been a revolution.

    • The average citizen has probably hardly heard of GDP let alone understand what it means and they will concentrate on the headline unemployment figure, hence no revolution.

  4. Shaun, that is a shocking story about job seekers in Italy. It explains why so many leave. I cant see an end to the banking issue as the authorities found a side step to the EU bank resolution process, I suggest with tacit agreement of the ECB who are minded not to enforce their own rules.

    Regarding Fiat engines, that comment is an affront. My red italian sports car awaits my return to Pisa in August. A ferrari red 600 Abarth (fiat).

    😉 Paul C.

    • Didn’t see your reply re Ferrari’s before I made my comment below Paul but it seems to fit in don’t you think?

      • Noo2

        Yes, I am the mobile mechanic! I enjoy fixing things anyway and the great thing about Italian cars is that they are designed to be worked hard when maintained correctly.

        Of course the southern economies are unfit to co-exist under the Euro. Even Macron is saying the Europe needs a re-think but since they’ve beaten off the Brexit infidel (holland & LePen) the EC seems to have a spell of self-confidence, all QE backed of course.


        • I had a Fiat Panda many years ago which wasn’t worked hard and was correctly maintained and I can only quote Simon & Garfunkel (Mrs Robinson) as to my feelings for that car – “Every way you look at it you lose”.

          On the serious side I think Macron, like the rest of the “wealthy northern nations” doesn’t want to share his country’s wealth with the poorer southern ones.

          While ever that attitude exists then the Euro is doomed to failure but if the EZ is operated in the same way as the US then it can work. That will indeed require a culture change and the electorate will have to rid themselves of the cynical view that the poorer nations will do nothing to improve themselves whilst they have access to social transfers from the wealthier nations – a type of moral hazard, but most people want to improve their lot, not simply muddle through and rub along.

  5. Even if Italy had really low youth unemployment, the number of applicants for the Bank of Italy’s concourse would have been huge, because this is the only way the Central Bank can recruit workforce. No wonder that the 30 winners will have a solid academic background, that will be important during their career, in a well paid and lifelong working position.

  6. “If we move to youth unemployment then frankly it is hard to see how a country with 37% youth unemployment can share the same currency as one with 6.7%, Germany?”

    For you maybe Shaun but not for me, the adjustment may be made via social transfers from Germany et al to Italy et al a la USA.

    Oh, and I wouldn’t want the Italian economy to be powered by a Ferrari engine, notoriously unreliable. If you ever buy one it’s best to employ your own personal mechanic to go in the car with each time you go out in it ready for when it breaks down – which won’t be long, mind you Fiat own Ferrari ant way so maybe you’re really getting a Fiat anyway. There’s some vague link there with your comments on which engine the Italian economy is really running on..

    • Hi Noo2
      In theory of course that is possible but there is little sign of that in reality. In fact regional and social policies are invariably underpowered pretty much wherever you look. For all the talk of it in the UK there are specific success but the general theme is that the poorer regions of 10 or 20 years ago are the poorer ones today.

      • You seem to be suggesting equalisation of income via transfers as that is all that I have witnessed in the UK , I’m not.

        I’m suggesting sufficient transfers via education, business grants, investment and some social security payments to empower people in poorer regions to build/strengthen their own local/regional/national economies

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