Confindustria president confident over Italy's future

Italy's economic future looks incredibly bleak if some tough and unpopular reforms regarding its public sector and economy are not enacted soon. But will prime minister Mario Monti and his government succeed in reshaping the county?

Emma Marcegaglia, the president of Italy’s employers association, Confindustria, is optimistic. She believes that much has been done already, and that all crucial issues are being addressed. If this continues, Confindustria’s economic research department believes that at the end of what is shaping up to be a dire 2012 – estimates forecast gross domestic product to decline between -1.6% and -2% for the year – the final quarter may show a slight economic growth.

One of the most promising achievements of this government, says Ms Marcegaglia, is the pension reform, which raised the retirement age to 67 years for all Italians, to be brought in in stages and completed by 2026. This year, retirement ages for women and men have been raised to 62 and 66, respectively. Such measures, and their acceptance with no major strikes or even civil unrest, gives hope that Italy may really be able to re-ignite economic growth. Hopefully, international markets will believe it too. “When the pension reform will be fully enacted, Italy will have the most sustainable pension system in Europe,” she says. “At [the World Economic Forum’s annual meeting in Davos, this year], when I was explaining it to other participants they couldn’t believe it, [asking] ‘will you really all retire at 67?’”

In the right direction

But Italy will need to do more to convince financial markets if investors are to accept that the country’s economic structure and public sector reform are on the right track.

The discussion over a number of these key reforms has started, such as the privatisation of various economic activities, the fight against tax evasion and the reduction of the tax burden. 

“Italy has an overall burden on tax-payers of 44% of total income [declared and estimated]. Considering that there is a vast area of undeclared work, the ones who do pay taxes end up footing a higher fiscal bill, with an effective 54% fiscal burden left on them – this is unsustainable,” says Ms Marcegaglia. “Revenues from the fight against tax evasion should be used to reduce the official tax burden.”

One of the hardest reforms to complete will involve the country’s labour market, where unions still play a large role. Over the past decade, Italy has introduced flexibility in the variety of contracts employers can use to hire staff, such as certain freelance contracts, in the hope that this would reduce the unemployment rate and the amount of undeclared work. However, this produced the unwanted consequence of creating a mass of workers that effectively serve as full-time employees but have no rights to employment benefits or contributions, says Ms Marcegaglia. No development or training is given to these workers either, to the detriment of the country’s general business landscape.

Further, rules governing the ability to dismiss employees, included in Article 18 of the labour market law, have always been interpreted as too rigid, and have yet to be modified, something Ms Marcegaglia hopes will change soon.

Change for the good

As for the other key reforms, Confindustria has been very active in promoting the benefits to the country of these changes. “What we are trying to do is, on the one hand, reduce the lack of flexibility at the point of [employment] entrance, and on the other hand, reduce the rigidity at the exit point,” says Ms Marcegaglia. “At Confindustria, we are involved in the discussion over the content of Article 18 to make sure that there will be a true reform. These are difficult, complex reforms but, if carried out over the next months, they can truly change Italy.”

Some much-needed reforms still need to be addressed, such as the disposal of the many public assets, including real estate, that the state owns. The likely outcome of these, as well as other changes, will become more apparent in the coming months. If successful, they will speed up the reduction of public debt, as well as support economic growth.

Italy may be famous worldwide for its fashion, food and furniture, but these sectors represent only 15% of total exports. It is the high-precision mechanics and advanced engineering sectors that contribute to the largest portion of international sales. Ms Marcegaglia believes that with the right reforms and a focus on improving productivity and innovation, these companies will have all they need to grow, and to take Italy’s economy with them.