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Europe’s Japan?

MILAN – Since the global economic crisis began in 2008, Italy’s GDP has declined by about 8%, nearly a million workers have lost their jobs, and real wages have come under increasing pressure. In southern Italy today, a young person – especially a woman – on a permanent work contract, being paid on time and in full, is a statistical oddity. And yet, an uneasy coalition government seems unlikely to address the concerns that drove voters to reject the entrenched ruling elite in the last election. The most striking aspect of Italy’s recent turmoil is what has not happened: citizens have not poured into the streets demanding reform.

Indeed, throughout the crisis, Italian society has remained uncharacteristically stable. The subdued nature of the few public protests that have occurred contrasts sharply with uprisings in Europe’s other struggling economies – such as Greece, Spain, Portugal, and Ireland – not to mention those that have roiled the Arab world in recent years. Even Sweden faced riots this year, as did the United Kingdom in 2011.

The absence of such outbursts of popular anger in Italy can be explained partly by the savings cushion built by previous generations. But there are also deeper social and political forces at play – forces that threaten to push Italy, like Japan after its asset-price bubble burst in 1990, toward silent decline.

Japan’s experience – characterized by more than 20 years of economic stagnation – offers important lessons for crisis-stricken democratic countries with aging populations. During Japan’s “lost decades,” successive Japanese governments allowed public debt to skyrocket and refused to confront the economy’s deep-rooted problems, allowing sclerosis to take hold.