• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

The Italian economy - Can Berlusconi get away with it this time?

Extracts from this document...

Introduction

Can Berlusconi get away with it this time? Introduction Italy has a diversified industrial economy with roughly the same total and per capita output as France and the UK. The Italian economy is divided into a developed industrial north, dominated by private companies, and a less developed, welfare-dependent agricultural south. Most raw materials needed by industry and more than 75% of energy requirements are imported. Over the last ten years Italy has tried to maintain a strict fiscal policy in order to meet the requirements of the Economic and Monetary Unions. The European Monetary Union is built on strong fiscal discipline foundations. The budgetary autonomy of EMU's members is subject to the constraints of the Maastricht Treaty and the Stability and Growth Pact. The Maastricht, and later Amsterdam, Treaty sets rules with regards to, among others, budget deficits, public debt and inflation as requirements for joining the euro as single currency. The current government of Silvio Berlusconi has initiated numerous short-term reforms trying to meet the Treaty requirements and improve competitiveness and long-term growth. Italy has moved slowly on implementing needed structural reforms, such as lightening the high tax burden and overhauling Italy's rigid labor market and over-generous pension system, because of the current economic slowdown and opposition from labor unions. ...read more.

Middle

Redundancy remains constant low and is expected to increase in the next period. We also see a dramatic drop in long-term interest rate, much in the same period as a rise in deficit rate around '94 - '96. High public spending, low interest and increased export are boosting the Italian economy in the early '90's. Question remains how shallow this recovery is. Unemployment and public dept are still on a high level. Lowering budget deficit might be just window dressing to the European partners. Berlusconi's promises to the Italian voters (pan et circense) have different effects on de budget deficit rate. Cutting taxes is without other sources of income bad news to the deficit rate. We can only expect a growing public dept to keep the current expenditure pattern. Especially when increasing pensions is the next promise in line. To create new jobs a low tax policy to incentive the corporate market is needed. A reformed and simplified tax program has been introduced. Again, this has an impact on Italy's treasure box. This has to be compensated otherwise. Both initiatives to reduce crime and to start new major infra projects need to be paid for. Unless the community is willing to trade off, the Italian government will pick the check, again. ...read more.

Conclusion

Berlusconi's programme takes care of at least part of the needed reforms. But these investments need to be paid for and that is why economic recovery is in contradiction with cutting taxes. Besides letting go of his promise to cut taxes, Berlusconi should look for more creative solutions. If he would involve the business environment in some of his projects, he could very well save money. A measure that has proven successful in some European countries is the privatisation of infrastructure through concessions. If a company builds a tunnel and then gets a long-government contract to exploit it, the government need not spend its -full- budget on the tunnel and can reallocate the funds. Conclusion Berlusconi's measures all executed at the same time will turn out to be disastrous for Italy's economy. Berlusconi has to invest in a better economic climate and foster creativity to pay for the needed structural reforms. And he has to let go of the idea of cutting taxes. His voters won't be happy, but it is history revisited. Remember who else said the famous words: "Read my lips: No higher taxes." We're sure Berlusconi can save him self from this treacherous situation. He has proven to be a successful escape artist before. 1 See OECD Paper on budget balance and 'one of measures', p. 71/73 2 See also Brakman & Garretsen 'Weersta de lokroep van lage belastingen' in NRC 16-09-04 ?? ?? ?? ?? 1 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Chinese economy sets for soft landing in 2005.

    Corruption, poor logistics and a tottering financial sector offset the advantages of China's massive labour force. Though the factories that foreign investors build in China are world class, China's own companies will have to learn the kind of marketing and organizational skills that don't roll off a production line.

  2. "Marks & Spencers" and the EMU.

    * Transparency in prices. A pair of trousers which may sell for 395 French Franc could cost around 61 Euro.

  1. Why did India launch a program of economic reforms in 1991? How successful these ...

    Monopolies were abolished to encourage competition. These reforms were again expected to increase growth rate and competition (Study pack, Economic reforms in India since 1991, p. 332). Prior to reform in trade policy high tariffs and restrictions were in place for example imports of manufactured goods were completely banned and certain capital goods were freely importable.

  2. What effects have interest rates had on economic indicators like GDP, Inflation ,Unemployment and ...

    As investment increases so does aggregate demand and as investment decreases then aggregate demand decreases- all things being equal in the formula. Graph to show Interest Rate Change and GDP Growth in the United Kingdom From the graph, interest rates began at 5.21% at the start of the ten year

  1. Entry criteria to the Euro

    The EU macroeconomic framework is evolving in the right direction. Enhancing the flexibility and dynamism of the European economy will also be important if the full benefits of EMU are to be realised. To enter the EMU on the basis of the convergence test is essential so that the UK

  2. The Famous Grouse - company profile and exports

    decisions taken for the marketing of the image of the Famous Grouse. So, should we be looking to sell the Famous Grouse as a specialist whiskey this would influence the selling price of the Famous Grouse in the USA.

  1. What microeconomic reform policies have the Australian government proposed for or implemented into the ...

    Trade surplus is one of the reasons to bring higher level of economic activity, income, output and employment. > The financial sector is intermediaries among households, firms, government and the external sector. It reflects savings from households and investment to firms, the external world and government.

  2. The Ohio Pilot Scholarship Program

    Perhaps the Supreme Court's decision is an indication that finally the nation has learned its lesson. This brings to the forefront the vexing question of just what makes a place a place like no other place. Phrased differently, what about a place persists and what changes over time.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work