(the main reasons)
The euphoria was evident. "We've done it!" Italian Prime Minister Enrico Letta tweeted the last year after the European Commission had provided his country with new financial leeway.
Letta had managed to convince Brussels that Italy would remain below the European Union's budget deficit limit of 3 percent of gross domestic product, if only by a hair, at a forecast 2.9 percent. The premier insisted that his country finally had the latitude to stimulate growth and promote new jobs, and that his administration had achieved "perhaps the most important result" of all time. That was at the beginning of July. Since then, politicians and lobbyists have been ...view middle of the document...
Last fall, the situation looked to be improving, to the point that then Prime Minister Mario Monti promised that "things will improve next year." But those hopes have now faded. The government has reduced its growth expectations for the current year to minus 1.3 percent. The Bank of Italy, the country's central bank, is even more pessimistic, forecasting economic contraction of 1.9 percent.
But economic growth only tells part of the story. More than half a million industrial jobs have been lost since 2007, and 15 percent of the country's industrial capacity is gone, says Luca Paolazzi, head of research for Confindustria, Italy's leading industry association. Some sectors have lost even more capacity, with the automobile industry having declined by 40 percent. According to Paolazzi, Italy is experiencing an "unprecedented process of deindustrialization."
But why? Many products that are made in Italy are still in demand internationally, and not just Armani suits or the Fiat 500. Furthermore, Italy, like Germany, has been able to increase its exports in the last three years.
But while exports boosted domestic production in Germany, the same did not happen in Italy. Italian experts attribute this to the growing tendency to produce elements of export goods in Southeast Asia, Poland and Turkey. Many companies merely use plants in Italy to assemble parts made in factories abroad.
This is depleting the country's traditional industrial regions. Take, for example, Fabriano, a small city of 30,000 in the Adriatic region known for its "white goods," like refrigerators, ranges and washing machines. Fabriano used to be "a rich community, Italy's Switzerland," says Mayor Giancarlo Sagramola, "until the euro arrived."
It used to be standard procedure for Italy to devalue its currency, the lira, to offset rising production costs. That, though, is no longer possible resulting in bankruptcy for some companies. Antonio Merloni SpA in Fabriano is one of them; it employed 5,000 people in its heyday.
To avoid this fate Indesit, another company based in Fabriano -- whose founders and principal shareholders are from the Merloni family -- shifted some of its production abroad, keeping only 2,900 of 6,500 jobs in Italy. In early June, the company announced plans to slash almost half of those remaining jobs.
Those affected by the cuts wept, prayed, wrote petitions and occupied the plant for a few hours. And the mayor knows what the latest bloodletting means for his city: even more unemployment and larger holes in his municipal budget. He doesn't even have the money to repair broken heating systems in municipal buildings, says Sagramola. Indesit employees fear that the recently announced layoffs will quickly be followed by the next step: the discontinuation of production of Italy altogether.
But what can protests, tears and prayers do against production and investment conditions that are simply no longer competitive internationally? Wages aren't the problem. They...