March 9, 2009

Italy's stimulus spending

In 2008 the Italian economy contracted 1.0 per cent, its worst showing since 1975, and last Wednesday the Bank of Italy predicted that the economy would likely shrink by 2.6 per cent this year. There is absolutely nothing to be happy about, but, as common sense suggests, if there is something that can make things even worse, it is to paint this crisis as a tragedy, and that is exactly what the center-left opposition is doing, along with some of the mainstream media. By the way, believe me when I say that this inner attitude of mind is another reason why so many former liberals—and I am one of them—became conservative voters, and proud to be so.

“Our greatest fear is that people will change their lifestyles just because they’re afraid, and thus worsen the crisis,” Berlusconi told reporters some days ago, after a Cabinet meeting in which the government gave its green light to funding for a major public works program valued at 17.8 billion euros. The program includes the Strait of Messina bridge, to connect the toe of the boot-shaped peninsula to Sicily (see my previous post). This, in addition to 5 billion for poor families and 2 billion for car rebates and incentives to buy energy-saving appliances, previously set aside by the government.

Moreover, next Friday the government will formalize a measure intended to stimulate the construction industry. Home owners will be allowed to add additional rooms to their homes (without exceeding 20 percent of the cubic volume of the existing structure). Practically, balconies and terraces could be covered and converted into indoor living space as extra bedrooms, bathrooms or kitchens. The plan will help families deal with the economic crisis while boosting activity for small, local construction firms.

This seems to me to be an effective and non harmful way to stimulate the economy. “Other countries have had to shell out money for bailouts,” said Finance minister Giulio Tremonti, “but they’ve done less for the economy.” Obama docet, I would dare to say. To give an idea, the new infrastructure program could be worth about 0.6 percent of Italy’s GDP, save some 65,000 jobs that would be otherwise lost due to lack of funds and create 140,000 new jobs. Public Works minister Altero Matteoli told Il Messaggero daily newspaper.

Of course, with regard to the Strait of Messina bridge, the opposition say it will be an ecological disaster, vulnerable to high winds, earthquakes and tidal waves, if not a boon for the mafia. But the truth is, as I told in a comment to my previous post (sorry to quote myself, but I’m lazy …), that for every public works project, here in Italy, there have always been crowds of Cassandras, objectors, hypercritical experts (or would-be experts) and, above all, political opponents who talk big and do nothing …, so most of the times I, as well most of my countrymen, just don’t trust them. There is no reason to think that the planners are so naïve, incompetent and irresponsible as to have not fully considered the possible impact of the bridge, its feasibility, etc. While there are very good reasons to think that Renato Schifani, speaker of the Senate and a Sicilian, was right when he declared the project to be of enormous importance for the whole of Italy’s depressed south.

Financial Times, International Herald Tribune, Timesonline, The Guardian, Ansa.