Italy’s Political Instability Continues to Threaten Europe

While the euro zone pulled out of recession in the second quarter of the year, Italy’s economy shrank 0.3 per cent. Italy’s problems with sluggish growth date back more than a decade, and have left it with the highest debt burden, as a percentage of gross domestic product, of any European country but Greece.

Prime Minister Enrico Letta is backing measures that could give growth a boost, such as tax simplification, regulatory reform, and modernization of the justice system, Finance Minister Frabrizio Saccomanni said in a letter published today in the Financial Times. But after taking office a full two months after inconclusive elections, Letta has spent much of his time fighting political brush fires, most recently surviving an Oct. 2 confidence vote after former Premier Silvio Berlusconi threatened to bring down the government.

The quagmire in Italy could derail Europe’s still-fragile economic recovery, European Central Bank Executive Board member Joerg Asmussen warned in a speech in Milan on Oct. 25. “The euro area cannot prosper if its third-largest economy has a potential growth rate of zero.”

via Businessweek

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