Italy’s economic underperformance is putting increasing political pressure on the country’s Prime Minister Silvio Berlusconi. Italy has just fallen into its second recession in two years. That contradicts Berlusconi’s optimistic outlook for the economy.He has just had to concede that the future looks tough and he will hold emergency talks with union and business leaders. Berlusconi must call a general election by May of next year. That gives him little time to turn around the economy. Since he came to power in 2001 Italy’s GDP has shrunk. The country is now officially in recession again having experienced two quarterly contractions in a row. Tax cuts have failed to stimulate growth, and euro zone finance ministers are not happy that Berlusconi now wants the EU to relax its deficit rules so Italy can use a further 12 billion euros of tax cuts to help struggling businesses. Italy’s economy minister Domenico Siniscalco is promising rigorous policies to put public finances in order. But Savino Pezzotta, leader of CISL, the country’s second biggest union, said he cannot understand why the government is only now realising the economy is in a critical state and he added that Italians will pay dearly for tax cuts that achieve nothing. One problem is that while other western nations have diversified into high-tech industry, Italy still relies heavily on manufacturing and areas that which are vulnerable to competition from developing nations.
Economists concede the deep rooted economic problems pre-date Berlusconi’s time in office, but say his centre-right government has done little to address them.