An Economic Agenda for Italy

Italy's new government faces the task of reforming the economy after more than a decade of bad policies, neglect, and low or negative growth. Its policy agenda should include labor-market reform, investment in human capital, fiscal adjustment, and measures to attract more direct investment.

MILAN – At the end of this month, Italian voters will choose their next government, from which they expect jobs and a more level economic playing field – and from which Italy’s European partners expect structural reforms and fiscal probity. What should the new government’s economic-policy agenda be?

To reduce public debt, which stands above 120% of GDP, while minimizing painful adjustments, Italy needs economic growth – something that has eluded policymakers in recent years. Indeed, Italy’s average annual GDP growth rate since joining Europe’s economic and monetary union in 1999 has been an anemic 0.5%, well below the eurozone average of nearly 1.5%. In the four years since the global financial crisis struck, the growth rate fell to -1.2%, compared to the eurozone average of -0.2%, and it is expected to remain negative this year.

The new government’s biggest challenge will be to implement reforms that enable Italy’s economic performance to catch up to that of its neighbors after years of bad policies and neglect. This requires increased investment in innovation and human capital.

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