Wages, Productivity and Employment in Italy: Tales From a Distorted Labor Market

Italy’s labour market productivity has been stagnating in the past decade despite numerous reforms. This column gives an explanation why this is so. By focusing exclusively on flexibility, past labour market reforms have completely neglected incentives. There is severe allocative malfunctioning in the Italian labour market. Wages do not reflect sector productivity in the short […]

Renzi’s Day

The Chamber of Deputies approved the electoral reform bill that Renzi and Berlusconi had negotiated before Renzi squeezed out Letta to become Prime Minister of Italy. The bill goes to the Senate now. That Renzi got the lower chamber to approve the bill is a minor victory, after all he enjoys a majority. There was some fear […]

Could Mario Draghi Implementing QE at the ECB Possibly Help Matteo Renzi Raise the Italian Deficit?

What a convoluted title! Still, the lack of formal elegance might just be compensated for by its communicative efficacy. The aim of the above header is to link two names in people’s minds, both of them Italian: Mario Draghi and Matteo Renzi. Naturally the idea is not original, the FT’s Peter Spiegel  recently published an […]

Italy: The King is Dead, Long Live the King

Florence Mayor Matteo Renzi has been formally offered the opportunity to see if he can put together a government that can win a vote of confidence>  It is not much of an issue in the Chamber of Deputies, where the PD has a majority, but in the Senate where it does not.  The market, which […]

Italian Events Spinning Away From the Letta and Alfano Government

Political developments in Italy are happening faster than Prime Minister Letta can maneuver.  The economy he is overseeing is the poster child of ECB President Draghi’s assessment of a weak, fragile and uneven recovery in the euro area. While Spain’s Target2 imbalances are gradually declining, Italy’s are edging higher.   The economy is lagging behind Spain in […]

Can Italy Double Its Oil Production?

By Rory Johnston: Beneath the ancient groves of Italy’s Basilicata region lies something more valuable to modern Italy than olives—oil.  The region represents the “instep” of Italy’s iconic boot and contains the largest inland oil reserves in Western Europe. Possessing over 1.4 billion barrels of crude, Italy stands as the third-largest European holder of oil […]

Electoral Reform: Italy’s Soap Opera Takes New Turn

Italy finds itself in a proverbial catch-22.  Its electoral system has been gutted by the Constitutional Court, but it needs an election to sort out the changes that have taken place.  These changes have included the split in the center-right, the formal ejection of Berlusconi from the Senate, and a new head of the center-left. […]

Eurozone Sovereign Debt: All Quiet on the Southern Front

After a wild ride in 2011-2012, interest rates have settled down on European sovereign debt. For now. Yields on long-term government bonds, Jan 2009 to Nov 2013. Data source: Eurostat. Greek yields fell sharply following the PSI agreement in March 2012, a de facto default that ended up reducing the value of Greek’s debt by 20%. But as […]

Assessing the Probability of an Italian Political Crisis

How likely is it that the forthcoming decision of the Parliamentary Committee to ban Silvio Berlusconi from the Senate will lead to a political crisis, prompting a strong rise in Italian yields? In my opinion, the probability today is slightly above 50%. Rather than hinging upon the survival of the Letta government, however, the likelihood […]

The Decline of Southern Europe

“Europe is back!” is the new, though cautious, market mantra. Certainly, Europe will ultimately recover, but it will be a different Europe. Current hopes are inflated, as evidenced by the erosion of Southern Europe. The second quarter GDP figures for the euro-area economies indicated growth, for the first time in 18 months. Some fund managers […]