Every August, Italian aristocrats flock to the cool hills of Fiesole overlooking Florence. This summer, as they look out at the timeless beauty of the Tuscan landscape, there is gloom in the air. The heirs to the glories of Italy see a national economy sinking—and sinking quickly.
In the second quarter of 2014, Italy’s gross domestic product contracted 0.2 percent. Following a decline of 0.1 percent in the first quarter, that’s enough to send the Italian economy into its third official recession since the global financial crisis that began in 2007. Italy now produces 4 percent less than it did a decade ago. Italian GDP, after adjusting for inflation, was just 340 billion euros in the second quarter of 2014, compared with 355 billion euros in the same period in 2004.
The Italian economy failed to recover from the global financial crisis, and output continues to fall. When the global financial crisis hit, Italy was required by virtue of its membership in the eurozone to cut borrowing. At the crucial moment when Italy needed to stimulate its economy, it was forced to tighten up. The economy slowed sharply and unemployment skyrocketed. Today the jobless rate is 12.3 percent, down slightly from a record 12.8 percent last November.
The weakening Italian economy is a growing worry for European Union policymakers. As the third largest economy tied to the euro, Italy is an important test of Europe’s economic experiment. Since the launch of the euro in 1999, Italy’s economy has been essentially stagnant, and that calls into question the benefits of the EU. Those rules that limit borrowing even in times of economic contraction strengthened the European currency but pummeled Europe’s weaker economies, which could not adequately stimulate growth. Germany and the richer economies of Northern Europe seem fine now, but will trouble in Italy and other southern nations pull down the eurozone? The point of the euro was to bring benefits to countries adopting the currency. It’s fair to say that up to now Italy has gotten niente.