For a while, the country's ills have seemed merely part of those of the wider euro zone, whose poor performance has reflected the sluggishness of its three core economies, Germany, France and Italy, which account for 70% of euro-area GDP. All three suffer from Europe's familiar troubles of excessive labour- and product-market rigidities, too high public spending and taxes, and too much regulation. Yet last week's news that Italy fell back into recession in the first quarter of 2005, while France and Germany picked up, suggests that Italy has even graver problems than the bigger two...
o wonder businessmen in Italy are feeling ever more pessimistic. Even as they struggle to cope with a somnolent economy, they can also point to a string of recent steps that have undermined their own confidence as well as that of foreign investors (see article). Things began to go visibly wrong two years ago when trouble (still unresolved) erupted at Fiat, the country's flagship carmaker, and when Italy's retail banks arrogantly sold high-risk bonds to their customers as if they were safe. The bonds were issued by Argentina and by two Italian firms, Cirio and Parmalat. The country defaulted, while the two food groups went bust. The fraud that brought down Parmalat showed that Italy's system of corporate governance was rotten. The regulatory response, though quick at first, became sluggish once politicians thought a crisis had been averted. Although Parmalat has been rescued, prosecution of those who nearly destroyed it has been less than zealous.
Corporate governance continues to suffer big reverses, none bigger than the ousting last week by the government of Vittorio Mincato, boss of Eni, the world's sixth-largest oil-and-gas company. Not only was this talented and apolitical manager replaced by somebody who knows nothing of the industry (Paolo Scaroni, boss of Enel, Italy's electrical utility); but also that ignorance is now shared by Eni's entire board. The political nature of Mr Scaroni's appointment suggests that the government considers any company in which it holds a stake as essentially state-owned and therefore susceptible to political direction. This reverses a slow trend for such companies to become independent of the political graft and favours that once made Italy pay a big premium to borrow in international markets. Mr Scaroni now has a chance to prove that he can resist political interference, just as Mr Mincato did. But Eni's shareholders will be watching nervously to see how the company behaves under its new management. Similarly, foreign investors are waiting to see whether the extraordinary saga of two attempted takeovers of Italian banks by foreign ones ends happily (ie, the foreigners win) or in farce. At this point, the outcome remains hazy, but the Bank of Italy and Consob, Italy's stockmarket regulator, have so far displayed a disturbing mixture of protectionism and sloth.
What happened to Italy?
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Originally Posted by Argeus the Paladin
