January 18, 2022

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Italy Has More to Fear Than the Coronavirus

(Bloomberg Opinion) — Italy was the first country in Europe to implement draconian measures to contain the Covid-19 epidemic. As the outbreak slows, the government is weighing when and how to reopen its economy.

There’s not much cause for optimism, sadly. The coalition government of the populist Five Star Movement and the center-left Democratic Party has been much better at enforcing lockdowns than at designing a strategy for what will come later. Italy’s public administration has struggled to distribute subsidies to those affected by the economic crisis. These problems, if sustained, will make it much harder for the country to recover.

The Italian government has had a mixed record in handling the pandemic’s early phase. Italy led the way in showing the rest of the Western world that you could impose severe restrictions on personal lives and economic activity in a democratic country. The government was right to enforce a national lockdown when the epidemic appeared limited to Italy’s north. This decision has helped prevent a crisis in the south, where the health system is more fragile.

Still, the lockdown came too late, especially in some badly affected areas such as the Bergamo province. This area, not far from Milan, has suffered a horrific increase in deaths, not all registered in the official Covid-19 statistics. Throughout the country, doctors and nurses have struggled with shortages of protective equipment, which have sometimes cost them their lives and helped spread the virus in hospitals.

Italy is now close to the peak of the outbreak, as the daily growth rate in active cases approaches zero. The government is considering lifting some of the restrictions it has phased in since the start of March. These measures are due to stay in place until April 13, and a formal announcement will only come around then. However, there are reports that the government might allow some factories to restart after Easter. It may be the beginning of May before citizens have greater freedom of movement.

Roberto Speranza, Italy’s health minister, has also announced an ambitious plan to complement these steps. This includes widespread testing of the population, in an attempt to isolate those infected before they spread the virus further. He also wants better tracing of people’s movements, to ensure that those who’ve been close to someone who tested positive are alerted promptly. This approach would bring Italy closer to Singapore and South Korea, which have done a better job at containing their outbreaks.

Unfortunately, while Italy has tested more people than other European countries, its public administration appears poorly equipped to cope with such an ambitious use of technology in the next phase. Last week, INPS, the country’s social security agency, experienced a major IT failure as hundreds of thousands of self-employed workers applied for a subsidy from the government. The agency’s president, a Five Star adviser, has blamed a hacker attack and Prime Minister Giuseppe Conte appears to have blindly accepted this explanation.

The government has set up a working group to guide it through this new phase. Yet this task force has 76 members; hardly the lean and effective structure needed to tackle an emergency. It also includes a handful party loyalists and apparatchiks, which bodes poorly for its success.

The bigger risk is that Five Star and parts of the Democratic party will use this emergency to aggressively reassert the role of the state in the Italian economy on a permanent basis. The government has banned companies from firing workers and is seeking much greater powers to control takeovers from foreign companies. These steps should be temporary, in theory, but they could prove hard to reverse — acting as a major disincentive to much-needed inward investment.

Italy has, understandably, asked for greater European solidarity in tackling the crisis. The European Central Bank has launched a 750 billion-euro ($810 billion) asset purchase program that is helping to keep a lid on the country’s sovereign bond yields. In turn, this is allowing the government to raise spending and offer hefty guarantees on bank loans to struggling businesses without fearing a market backlash. The European Commission has also announced a scheme of cheap loans to support the labor market of fragile member states. Italy will need support afterwards as well to deal with its already unwieldy public debt, which will grow substantially.

Still, external help can only go so far unless the Italian government has a realistic strategy and implements it effectively. The coronavirus caught the coalition by surprise. It won’t have the same excuse for the economic reopening.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Ferdinando Giugliano writes columns on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.

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