Analysis: Italy's reform list reflects tough test for euro zone

Sun Oct 13, 2013 5:51pm EDT
 
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By Alan Wheatley

LONDON (Reuters) - From its high labour taxes to its low literacy scores, Italy's entrenched obstacles to growth point up the enduring failure of some euro zone economies to adapt to the demands of life with no currency flexibility.

Protected by the European Central Bank's pledge to buy member states' bonds in an emergency, Italy has escaped market punishment for the political gridlock that has hampered reforms.

Nor is Italy the only reform sinner. France has been pilloried for its timidity in reining in pension and welfare spending. Germany has been under fire for years for not liberalizing its services sector.

But Italy stands out for many as the euro zone's weak link because of a toxic combination of high debt, low growth, fragile government and choking red tape.

Prime Minister Enrico Letta's coalition survived an attempt by former prime minister Silvio Berlusconi to wreck it, but he has little room for maneuver to tackle structural economic weaknesses.

"All the political ructions have done is thrown Italy's chronic economic and structural problems ... into sharp relief," said Nicholas Spiro with Spiro Sovereign Strategy in London.

BIG TAX WEDGE

At 133 percent of GDP and rising, Italy's debt stock is second only to Greece's in the euro zone, while growth has averaged just 0.7 percent a year in the past 20 years.   Continued...

 
Italy's Prime Minister Enrico Letta attends a news conference in Lampedusa October 9, 2013. REUTERS/Calogero Lampo