Page last updated at 01:12 GMT, Monday, 7 April 2008 02:12 UK

Italian politics hold back economy

By Dominic Laurie
Europe business reporter, BBC News, Rome

Gucci sign
Italys' best-known brands are losing none of their lustre

In Via dei Condotti, Rome's most fashionable shopping street, you would be hard pressed to tell that Italy was facing an economic crisis.

Shoppers chat excitedly, gawping at the handbags, shoes and jewellery in Gucci, Prada, and Bulgari.

The whole world looks to Italy for its design inspiration, so it is no wonder the displays are so confident.

Unfortunately, the same cannot be said for the economy.

Mounting pressure

Italy's debt levels are still greater than the total value of its economy.

Business confidence is down badly and growth is slowing rapidly.

So rapidly, in fact, that in March its main business lobby group, Confindustria, said that this year it could grind to a halt altogether.

There are too many restrictions, too many rules, they're so complicated
Franco Fraschetti,

A number of factors have combined to put on the brakes, not least the fact that Italy chooses not to have nuclear power and as a result, relies heavily on expensive imported oil and gas for its energy.

Exports are suffering because of the strong euro, a significant problem because Italy's economy is far more reliant on foreign sales than many others in Europe.

The US downturn means that one of its biggest customers is spending less.

Add to that the fact that Italian business has some of the highest corporate taxes in the world - and you can see why some say the country may even already be in recession.

'Too many rules'

Italy's current problems have affected the job market.

Once very rare, temporary contracts are becoming more common - and more unpopular.

Young people say they cannot plan for the future - buy a house, get married - when their employment status is so uncertain.

Franco Fraschetti
Franco Fraschetti is one of Italy's success stories

Italian businesses, though, says they need this greater flexibility to reduce costs.

Labour reform is one of the few government achievements cheered by Confindustria in the last few years.

About 100km (60 miles) outside of Rome is a typical Italian firm.

Run by Franco Fraschetti, his wife and his brother, the company was set up more than 100 years ago, by his grandfather.

It imports garden equipment, turns over $90m (45m) a year, and is expanding.

The company is an Italian success story, but even here, there is gloom.

"It's difficult for a private company like this to survive in the difficult circumstances our country throws up every day," Franco says.

"There are too many restrictions, too many rules, they're so complicated, so sophisticated! I don't think the elections will make any difference, I am a bit of a pessimist."

Frog cooking

If a successful company is this downbeat, then it says a lot about the current mood in Italy.

But will a winner of the upcoming elections give the economy some hope?

There are 150 parties on the ballot, and Italy's electoral system will give many of them seats.

It's not really clear we have a political class that will be able to rise to the occasion
Franco Pavoncello,
John Cabot University

As a result, tiny parties become kingmakers, and the sort of economic and infrastructure reform pushed through by stable governments does not tend to happen.

Franco Pavoncello, the dean of John Cabot University in Rome, says that as long as Italians still feel relatively rich, they will not demand reform.

"It is as if you are cooking a frog," he explains.

"You don't throw it in boiling water, you throw it in lukewarm water so you can cook it at will - and the frog doesn't move because it's actually having a good time at first."

He says this means politicians are unlikely to be goaded into solving a problem by their electorate.

"It's not really clear we have a political class that will be able to rise to the occasion, and be able to promote the restructuring of society that this country needs to be able to face outside competition," Mr Pavoncello states.

Status quo

But is it in politicians' interest to push through reforms that are often difficult and unpopular?

After all, the Italian state is a big beast, with four layers of government and huge corporate tax receipts needed to bankroll it.

Election posters
Italy is facing yet another general election, which may change little

However, businesses here say they are fed up with funding the Italian state's wastefulness.

Luca Paolazzi, the director of research for Confindustria, says Italian firms will find it easier to flourish away from home.

"I am quite optimistic for Italian companies, because they can go all over the world and they can go to invest where it is more convenient," he says.

"But I am quite pessimistic for the country. Italian companies can operate worldwide, whereas Italian people have to live here."

Italian firms say they will invest more at home if their government shrinks in size - and becomes less of a burden on both private and corporate taxpayers.

But, just as turkeys do not vote for Christmas, that is unlikely to be a choice that is on the ballot paper come election time.

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