ITALY’S MACROECONOMICS ANALYSIS:

PROBLEM RESEARCH & SOLUTIONS

Ardeleanu Thea Maria, Carlotta Beccaria, Pio Cosentino, Simon Brogtrop.

Italy’s macroeconomic analysis 1

 Contents

I. Introduction

1. Inflation
2. Public debt
3. Unemployment
4. Migration
5. Stagnation

II. Conclusion

Italy’s macroeconomic analysis 2

 I. Introduction

Italy is a country with a rich history, cultural heritage, and a thriving culinary scene. Its
economy is diverse and focused on industries such as manufacturing, tourism, and agriculture.
The country is known for its contributions to the automotive, fashion and design, machinery,
pharmaceuticals, and food processing industries. Italy's reputation for craftsmanship and
innovation has earned it a place in the luxury goods, fashion, and automotive engineering
markets, and helped it build an impressive export profile. Italy holds a significant position in the
world’s economy by being the eighth largest in the world and third in the European Union.

The Italian demographic landscape plays a crucial role in shaping the country’s economic
trajectory. Understanding its trends may help comprehend its economic dynamics and its
challenges.

Demographic trends:
§ Decline in population of 0,94%
§ The aging population’s average age: is 46,5.
23% of the population is aged 65 and over.
§ Birth rate (one of the lowest in Europe): 1,3 children per woman.
§ Regional disparitiesà high GDP and low birth rate in the north, lower GDP, and higher
birth rate in the south.
§ Approximately 9% of Italy’s population are immigrants.

For what regards the political structure of the country, Italy operates under a parliamentary
republic system, with President Sergio Mattarella serving as the head of the state, and Prime
Minister Giorgia Meloni, serving as head of the government.

The country is situated in southern Europe and it borders France, Switzerland, Austria, and
Slovenia. Its population is around 60 million and it is the fifth largest country by population in
Europe. The geographical landscape is very diverse as it ranges from the Alps in the north to the
Mediterranean coast in the south. This creates various opportunities for industries like tourism,
agriculture, and energy resources (e.g., solar energy or hydroelectric power).

High-quality manufacturing, design, and craftsmanship are among Italy's strengths, which
have allowed its companies to become global leaders in various sectors. Italy's exports include
automobiles, machinery, textiles, and clothing, as well as food products, including wine, olive oil,
and cheese. Italy's strategic location, advanced infrastructure, and well-established trade networks
help it integrate into global markets. It is the eighth-largest exporter worldwide and a founding
member of the European Union (EU) and the Eurozone.

However, Italy also faces economic challenges such as sluggish growth, high public debt, and
structural issues in its labor market. Persistent low productivity growth, an aging population, and
a burdensome bureaucracy also pose long-term challenges to sustainable growth and
competitiveness. Despite these challenges, Italy remains an important player in the global
economy, with exports and imports accounting for a significant portion of its GDP.

Italy's economy can be assessed through key macroeconomic indicators such as GDP
growth, inflation rate, unemployment rate, and public debt-to-GDP ratio. Despite facing
structural and external challenges, Italy has seen some economic growth in recent years. While
inflation has remained low due to weak demand and accommodative monetary policy, the high
unemployment rate among youth and in certain regions highlights ongoing struggles in the labor

Italy’s macroeconomic analysis 3

market. Furthermore, Italy faces a significant public debt burden, which poses risks to both fiscal
sustainability and economic stability.

• Public debt 2023: 2.86 trillion euros

• Exports 2021: 615,910 million
• Imports 2021:568,202 million.

Italy's economic policy is guided by the parameters of the Eurozone, where the European
Central Bank (ECB) controls monetary policy. As a member, Italy's monetary policy is aligned
with the ECB's objectives of maintaining price stability and fostering economic growth in the
currency union. In response to economic difficulties, Italy has taken steps to improve growth
and address structural weaknesses through various fiscal policy measures and reforms. These
include enhancing labor market flexibility, simplifying bureaucracy, and fostering a more
business-friendly environment to boost investment and job creation. Furthermore, fiscal
consolidation measures have been put in place to reduce Italy's debt-to-GDP ratio and ensure
long-term fiscal stability.

The purpose of this project is to analyze and discuss the macroeconomic problems that this
country is facing and propose solutions that would lead to a better Italy.

Italy’s macroeconomic analysis 4

1. Inflation

Inflation in Italy over a 5-year period. Source: ycharts.com

Italy is not totally responsible for its monetary policy since they are dependent on the
European Central Bank (ECB) which is also contributing to the decision-making. This means that
Italy and the European Central Bank can have a dialogue regarding this policy, which affects Italy
as well as other European Union members.

Since Italy is not 100% responsible for its monetary policy we will be focusing on the
European Central Bank.

The ECB blames the soaring energy prices due to the war in Ukraine, which in turn
influenced inflation. But in reality, this is a result of the favorable packages the governments in the
European Union have given during COVID-19. The inflation reached its peak near the end of
2022 at 12,6% in Italy. Because of this high rate of inflation, the ECB put in place ‘one of the most
aggressive and synchronous monetary policy-tightening episodes on record.’ (Dao, Dizioli,
Jackson, Gourinchas, & Leigh, 2023). This aggressive policy put the Euro on a disinflationary
trajectory during 2023, with the average inflation rate of 2023 being 5.8%, down from 8.1% in
2022.

During this period of unprecedented inflation in the Euro zone households with a low
income were hit the hardest, allocating more of their income to food and energy leaving little extra
over for other necessities leading to an increase in the income gap in Italy. A good public policy
can ensure that this gap will not rise too high. One of the ways the Italian government can combat
this is by increasing their tax compliance which is one of the lowest in the European Union. By
increasing their tax compliance, the Italian government can increase government spending and

Italy’s macroeconomic analysis 5

reallocate these resources to the
households that were hit
hardest. If the Italian
government increases spending,
it reduces the inflationary rate
even further because this leads
to a boost in employment levels.
The aggressive policy of
the ECB involved raising the
interest rates from nearly 0% to
4% in a span of a few years.
Raising the interest rate reduces
the demand for loans and
therefore lowers the rapidly
growing inflation of the euro.

With the current

inflation rate being 5.8%, I
would suggest the European
Central Bank follow a
contractionary monetary policy to achieve the desired target within the European Union of 2%
inflation, while being careful not to overshoot the desired target. The European Central Bank can
raise the short-term interest rate slightly to speed up the disinflationary process. This can be
achieved by raising the reserve requirement on banks, so the banks cannot lend out as much money,
resulting in a higher interest rate.

2. The relationship between public debt and inflation.

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Governments use public debt as a tool to finance the surplus of their spending, in such a way that
is beneficial for the development of a country.
The public debt of a country is generally given by a percentage of Nominal GDP, as seen
in the graph above. As of October 2023, Italy’s public debt was $3,030.5 bn, translating to 140.6%
of their Nominal GDP.
Inflation expectations influence the Central Bank’s decisions on interest rates. The high
inflation during COVID-19 led to higher interest rates to control the money supply and cool down
the economy. Because of the higher interest rate, the cost of new borrowings for the Italian
government increases, potentially leading to higher future debt levels.
This is a problem that can be offset by the role inflation plays in the value of Italy’s public
debt; the real value of their debt has decreased due to more money in circulation. The debt to GDP
Ratio shrinks as a result of this.

3. Unemployment

Unemployment is a macroeconomic problem concerning all the people of working age who
are willing and able to work, but are unable to find suitable work positions. As studied in the
course “Introduction to Economics”, we recognize two forms of unemployment, one of them
being much more complex than the other.

The first type of unemployment is frictional, considered to be normal unemployment. It

represents all the people who are in between 2 jobs, as the process of moving from one job to
another could take months. The presence of frictional unemployment is not bad for the
economy, and it shows that the economy is alive and working.
The second type of unemployment is structural, it is indeed not a normal type of unemployment,
but rather a more complex one. It underlines a mismatch between the demand and the supply of
labor. When talking about structural unemployment, we usually link its presence to the presence
of rigidities. Rigidities are all the factors that prevent an economy from smoothly finding an
equilibrium between employment and wages. The most known rigidities are those linked with
wages (eg. minimum wage) or legal and regulatory (e.g. bureaucratic practices, labor market
regulations).
When describing unemployment in Italy, both structural and frictional unemployment,
are issues, but the problematic one is the structural as the mismatch between demand and supply
is significant. Additionally, Italy's education and training systems may not always align with the
needs of the labor market. There may be a lack of emphasis on developing skills that are in high
demand by employers, such as technical and digital skills, leading to a mismatch between the
skills acquired by individuals and those required by employers. This skills gap can result in
unemployment for individuals who lack the qualifications or experience necessary to secure
employment in their desired field. Furthermore, regional disparities in economic development
worsen structural unemployment in Italy. Southern regions, in particular, face double the levels
of unemployment compared to Northern regions, due to factors such as limited access to

Italy’s macroeconomic analysis 7

education and training opportunities, lack of infrastructure, and fewer job places. These regional
disparities contribute to the uneven distribution of employment opportunities and exacerbate
inequalities within the labor market.
As of this year, Italy is the fourth country in Europe with the highest rates of unemployment,
following the first three Spain, Greece, and Sweden. For what regards youth unemployment, Italy
is fifth in the EU. This situation not only reflects the challenges within the Italian labor market
but also underscores broader economic and social concerns. High levels of unemployment,
particularly among the youth, not only hinder economic growth but also contribute to social
instability and inequality.

On the 22nd of October 2022, Giorgia Meloni was elected as Presidente del Consiglio,
the first woman in Italy to have this role. One of her goals was that of lowering unemployment
in Italy and her actions surprisingly worked showing very positive data for what regards
employment. Istat data shows that the rate of unemployment in Italy in 2023 is the lowest since
2009.
Over time, Giorgia Meloni has consistently emphasized that implementing a minimum
wage could have detrimental effects on the labor market, as it may end up "decreasing the wages
of a greater number of workers compared to those it would benefit." Additionally, Meloni has
expressed interest in removing/replacing the “Reddito di cittadinanza” which is a welfare
program aimed at providing guaranteed minimum income to citizens regardless of employment
status. Despite similarities to the unemployment benefits, it is not the same. Her thoughts on it
were that people were taking advantage of the “government's money” and were claiming it by
falsifying the requirements. This led to people being less incentivized to find employment.
As for the beginning of this new year, the “reddito di cittadinanza” has been officially removed
and replaced by other, better-controlled programs.

We have now said that despite the worrying levels of unemployment in Italy, the
government is indeed trying to work on it and showing positive results. Nonetheless, youth
unemployment remains a pressing concern that requires further adjustments and targeted
interventions to effectively alleviate the challenges faced by young people entering the labour
market. Youth unemployment is the highest in the history of Italy with the COVID-19 pandemic
with a rate of 29,3%. Right now, in Italy, it is much harder for younger generations to build a
solid career than it was years ago.
The rumor that goes around the Italian youth unemployment is that young generations “don’t
want to work”, and despite it being true that there’s less discipline and willingness, is it really
their fault? Or are there bigger forces causing younger people to be employed less? Recent years
have shown higher levels of underpaid stages, temporary contracts, and uncertainty regarding the
professional future.

The major causes of youth unemployment are:

• low-quality education
• lack of experience and specific skills
• economic and financial crisis after the pandemic
• low wages

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 • lack of incentives
This phenomenon is an obstacle to Italy’s economic growth and development as young people
represent the future and innovation and would thereby be special resources for the economy.

Talking into account numbers, we have selected data from people aged between 15 and
74 (which is the average working age) from 2020 to 2022, in 2020, Italy faced a national
unemployment rate of 9.3%, a figure that saw a slight uptick in 2021 rising to 9.5%, however, the
country saw a notable improvement in 2022 with the rate dropping down to 8.1%.

Regional Disparities:
Examining the regional disparities, the North consistently maintained lower
unemployment rates, recording 6% in 2020, remaining stable in 2021, and further decreasing to
5.1% in 2022. Conversely, the Centre region witnessed an increase from 8.2% in 2020 to 8.6% in
2021, followed by a decline to 7% in 2022. The South, characterized by the highest rates,
experienced unemployment at 16.2% in 2020, a marginal increase to 16.4% in 2021, and a
substantial reduction to 14.3% in 2022.

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 Youth Unemployment:
Focusing on youth unemployment, the situation appears more critical. Youth
unemployment has reached the highest in the history of Italy with the COVID-19 pandemic,
recording a rate of 29.3%. In 2023, the youth unemployment rate in Italy was at 21.7%,
significantly higher than the European average of 13.8%, indicating that it is much harder for
younger generations to build a solid career in Italy compared to years ago. This reflects a pressing
need for Italy to address this challenge and work towards aligning with the European average.

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 Overall, the employment trends in the case of Italy have been portraying a mixed
situation of positive and negative developments. The overall unemployment situation was
modestly improved in several years, taking into account important regional variations. The North
was the steadiest in figures and the highest level of employment, the South was the lowest but
indicating improvement, and the Centre was the one fluctuating in numbers in terms of
unemployment but showing an overall positive trend. These rates remain considerably high,
which speaks a lot about the perennial challenges that bedevil young people in the labour
markets, hence the urgent need for focused policy interventions.

Solutions

The solutions to unemployment can be categorized into two main groups: youth-specific
(measures tailored to address the challenges faced by young individuals entering the job market)
and broader solutions (applicable to the entire workforce).

Youth measures:

1. Proactive Educational Alignment:

- Develop a forward-thinking strategy to align educational programs with the current and
future needs of the labor market, with a particular emphasis on revitalizing technical and
professional training.

2. "Study Ergo Work" Culture Promotion:

- Motivate educational institutions to be transparent about their graduates' employment rates.
- Launch a detailed communication strategy to direct students and families toward educational
paths with strong employment prospects.

3. Public-Private Partnership Enhancement:

- Foster collaboration between businesses, educational institutions, and governmental bodies to
create programs targeting the skill gaps in the workforce.
- Initiate schemes that facilitate a smoother transition from academic life to professional
employment, thereby boosting job opportunities for Italian youth.

4. Government Incentives Advocacy:

- Campaign for specific tax incentives for companies that employ young talent and invest in
their skill development.
- Work towards creating a business-friendly environment that attracts overseas investments and
stimulates economic expansion.

5. Labor Market Flexibility:

- Address the inflexibility of the labor market by advocating for more versatile contractual
arrangements, like part-time and fixed-term contracts, making it easier for individuals to join the
workforce.

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6. Keynesian Economic Application:
- Recommend an increase in public expenditure in regions with high unemployment to foster
job creation, especially through public infrastructure projects.

7. Structural Interventions for Unemployment:

- Propose comprehensive changes aimed at enhancing the economic framework, infrastructure,
and the overall business milieu.
- Improve educational structures to ensure the development of a workforce equipped with the
necessary skills for a dynamic job market.

General Measures:

1. Economic Stimulus:
- Implementing fiscal policies to stimulate economic growth, which can lead to job creation.
- Investing in infrastructure projects that can create jobs in the short term and improve efficiency
in the long term.

2. Labor Market Reforms:

- Increasing the flexibility of the labor market, potentially by reforming contracts and reducing
the costs of hiring and firing.
- Improving the efficiency of public employment services to better match job seekers with
available positions.

3. Education and Training:

- Aligning education with market needs by focusing on skills in demand, such as digital literacy
and technical vocations.
- Increasing access to vocational training and continuous professional development to keep the
workforce's skills up to date.

4. Support for Entrepreneurs:

- Encouraging entrepreneurship through tax incentives, grants, and simplification of the business
start-up process.
- Providing support for small and medium-sized enterprises (SMEs), which are a major source
of employment.

5. Investment in Innovation and Research:

- Funding research and development to stimulate innovation in various sectors.
- Supporting the growth of high-tech and innovative industries, which can offer new
employment opportunities.

6. Tax Incentives:
- Offering targeted tax relief to companies that hire unemployed workers, particularly the youth
and long-term unemployed.

Italy’s macroeconomic analysis 12

7. Social Security and Welfare Reform:
- Adjusting welfare policies to ensure that they do not discourage job-seeking, while still
providing a safety net for the unemployed.

8. Support for Disadvantaged Groups:

- Implementing programs to help groups that are disproportionately affected by unemployment,
such as the young, women, and older workers.

9. Boosting International Trade:

- Promoting exports and internationalization of Italian companies to create jobs and reduce the
trade deficit.

4. Migration

As a consequence of youth unemployment, high levels of youth migration arise, as

younger generations do not see Italy as an attractive country offering future careers and job
opportunities. At this time, there are 1,2 million people aged between 19-34 that have moved
abroad and for every young foreigner coming to Italy, 7,5 young Italians leave their country.
To this problem of Italian migration, we can add that women are also considering migration as a
response to limited career prospects, lower wages, and fewer work opportunities. In Italy, the
difference between males and females in employment is higher than 10% points. Italy is the
second country in Europe, following Greece, with the highest gap between males and females
employed.

Solutions:
The strong strategies that have been aimed at cutting down unemployment inherently carry the
potential to simultaneously cut down the migration problem. These include proactive educational
alignments to build a solid foundation for employment opportunities, promotion of a "Study Ergo
Work" culture, enhancing public-private partnerships, advocating for government incentives,
enhancing labor market flexibility, applying Keynesian economic principles, and implementing
structural interventions. These measures reduce unemployment rates and address migration
reasons by increasing job opportunities and improving work conditions in Italy. Some migration
solutions only can be:

1. Enhanced Career Opportunities and Job Creation:

- Investing in sectors that have the potential for growth and job creation can make Italy more
attractive to its youth and reduce the urge to migrate. This includes support for entrepreneurship,
innovation, and industries where Italy has a strong cultural or economic foundation, such as
fashion, manufacturing, technology, and agribusiness.
- Implementing policies to support job placement directly after education can help retain young
talent within the country.

Italy’s macroeconomic analysis 13

2. Gender-Specific Employment Initiatives:
- To address the significant gender gap in employment, initiatives that offer incentives to
companies for hiring and promoting women can be introduced. This includes enforcing equal pay
regulations and providing support for women-led businesses.
- Developing programs that support work-life balance, like subsidized childcare, flexible working
hours, and parental leave, can be particularly effective in encouraging women to remain in the
workforce.

So if we combine focused actions for unemployment and actions to control migration we are
bound to jointly build a better future, more appealing to the youth and women in Italy, who will
be encouraged to embark on their professional careers in their own country and not leave to work
abroad.

5. Stagnation

a. Introduction to stagnation

After a period of serious growth that occurred after the wars, where Italy was having a big
expansion and success in many fields: productivity, employment, and GDP, the country happened
to fall into a recession and all the good things (that were mentioned before) started to shrink. From
being one of the biggest leaders in hourly productivity, GDP, etc., Italy is now one of the countries
that is suffering profoundly from stagnation and a lack of productivity. ( approx. 20% below
France and Germany)

“Productivity, a dark evil of the Italian economy.”

It is affirmed that Italy’s economic stagnation is a matter of fiscal, national, and European
concern. Overcoming this stagnation is a matter of importance not just for Italy itself, but for the
future of Europe as a whole. This issue didn’t happen overnight, it was a result of many failed
policies and decisions that have been adopted over the years. The problem appears to be that Italy
adopted a doubly incoherent mix of structural reforms and austerity, and then stuck to it after its
ineffectiveness had become apparent.

b. Failed Reforms

Together with broadly liberalizing structural measures, this reform package included fiscal
restraints. First, structural improvements are not always successful in areas with low aggregate
demand(there is not enough overall demand for goods and services in the economy to utilize all
available resources, such as labor and capital), therefore the combination proved inconsistent.
Second, it turned out to be inconsistent due to the conflicting effects of the different reforms.
Certain labor market reforms, for instance, supported the Anglophone model of broad
skills(emphasis on versatility, adaptability, and continuous learning as essential attributes for

Italy’s macroeconomic analysis 14

success in the modern economy), while others were geared towards the German model of
encouraging investments in firm-specific skills through job security and stability. The last twenty
years of reforms have undermined Italy's outdated growth model, without creating a new one.

Three institutional characteristics—organized crime, the system of justice, and, to a lesser

extent, the quality of public administration, particularly at the local level—seem to be significant
barriers to investment and productivity growth in addition to this inconsistent reform mix. They
diminish both the amount of private investment and the quality of public investment.

c. Stagnation & Productivity

The failure of these reforms and many other reasons that will be discussed further in this
chapter, caused a lack of growth in the productivity levels.

One of the most important tools that indicates how a country is developing is productivity.
It is very important to look over this in order to understand the stagnation.

d. Caused for decreased productivity:

Although Italy is still one of the most important manufacturers in the world, the productivity levels
are decreasing each year, due to several reasons:

• Lack of Education: having one of the lowest rates of higher education in Europe, Italy has the
2nd highest rate of young people not in employment, education, or training. Inadequate digital
equipment and infrastructure and limited digital training for teachers and students hamper
innovation in education, especially in rural areas. If the younger generations don’t step in to
try to change Italy for the better, there will be no evolution in Italy’s economic growth. Instead,

Italy’s macroeconomic analysis 15

 younger generations are leaving the country, with a percentage of 10% of highly educated
Italians leaving abroad. How can Italy increase its productivity?

“Nothing would impact productivity more than investing in schools and education because we need
to encourage the younger generations to take degrees in the sciences, which is what the market needs”
Augusto Ninni, lecturer in Applied Economics at the University of Parma

“Causing greatest concern is the lack of productivity growth attributable to a lack of skills and a
mismatch between the skills available and the real needs of companies.”
Augusto Ninni, lecturer in Applied Economics at the University of Parma

• Lack of competition: It is obvious that competition is one of the key elements that drives
productivity, while in Italy, it’s lacking. Interestingly, Italy has a surprisingly small number of
large firms, and almost 70% of employers work in businesses with less than 50 people.
Furthermore, Italian firms lack the willingness and the ability to adapt to the modern markets,
because they don’t invest in new technology. Italy is outdated when it comes to the modern
era, and we can clearly see the downturn effect. Also, the prohibitive regulations, local
corruption, and cozy relationships between the government and local business lobbies prevent
new entrepreneurs from entering the markets, successfully leading to blocked competition and
investment. “Furthermore, the length, complexity, and unpredictability of administrative procedures,
remaining restrictions to competition, and some sectoral overregulation weigh on firms’ productivity and
competitiveness, discouraging investments. The allocation of capital is not fully efficient, constraining access to
finance notably for start-ups and small firms, whose use of non-bank financing remains limited.”

“Unfortunately, in Italy, the government continues to support small companies, but they are
slowing down the innovation process because they are not able or willing to keep
up with the standards of their international competitors”
Augusto Ninni, lecturer in Applied Economics at the University of Parma

• Demographics: With the number of abortions increasing, and the young generations leaving
the country, there is an outrageous difference in the % of young people and old people.
Younger generations are more productive and more capable of increasing the labor force. “In
2023, in Italy, there were 193.3 elderly people for every 100 young individuals.” “The fall in
the birth rate is so acute, that remote towns and villages are running out of people. With an
aging population, it becomes more difficult to transform an ailing economy. Italy needs more
young entrepreneurs and skilled workers, not less. Even concerning female participation in the
labor market, Italy has the lowest rates in Europe.”( Tejvan Pettinger, Economics). The Italian
public sector workforce is one of the oldest and least skilled in the EU, with about half of the
staff set to retire in the next 15 years.

Italy’s macroeconomic analysis 16

• Unemployment: Stagnation and unemployment are separate economic problems, but they
influence each other profoundly. While there is another chapter talking about unemployment
in Italy, I want to mention an obvious fact:
unemployment leads to stagnation, since a lack
of labor decreases the level of productivity(a
tool that is based on human labor).

e. Productivity based on areas and

sectors of activity:

Source: Statista

Regional productivity disparities are evident,

with Northern areas exhibiting higher
Source: Statista productivity compared to the rest of Italy.
However, a widespread decline in
productivity is observed across Central, Southern, and Island regions, with declines ranging from
6 to 10 percent over the past two decades. Despite their relatively higher productivity levels,
Northern regions have also experienced some productivity weakening, although there have been
gradual improvements in recent years. The South lags economically, as well as in terms of
infrastructure and institutional quality. Productivity and innovation are lower in the South.
Competitiveness is also considerably worse in Southern regions, including due to weak transport
infrastructure.

Significant differences in sectoral productivity are notable, with certain industries

experiencing notable declines. Specifically, labor-intensive, and low-skilled sectors such as
construction and arts and entertainment have seen productivity declines exceeding 20 percent from
2000 to 2019. Most other sectors have not witnessed substantial productivity growth, except for
information and communication technology (ICT), agriculture, and, more recently, industry.

Italy’s macroeconomic analysis 17

However, the ICT and industry sectors, which outperform others, contribute only about one-fifth
of total value added and employment.

f. Solutions:

To eliminate, or at least diminish,

the stagnation in Italy, and raise the level of
productivity, a plan called “The National
Recovery and Resilience Plan” (NRRP),
was written in 2021(after the crisis from the
CoronaVirus) and implemented at the end
of 2023. This plan contains multiple
missions regarding what needs to be
improved in Italy (see table below), but I
will only discuss the ones regarding the
problem described in this chapter. “Italy has requested the maximum amount available under the
Recovery and Resilience Facility, corresponding to EUR 191,5 billion, of which EUR 68,9 billion
in non-repayable financial support and EUR 122,6 billion in loans.”( COMMISSION STAFF
WORKING DOCUMENT, European Commission).

Mission 1 involves reforms to help with digitalization, innovation, competitiveness,

culture, and tourism, with a sum of approx. 40 billion euros allocated to these causes. As mentioned
before, Italy’s stagnation is due to a lack of productivity, which is also caused by different factors,
but “The National Recovery and Resilience Plan” can help to change that:

1. Digitalization of Italy. Schools need this,

businesses, and households, it is an obvious
help in this era of technological modernization.
If Italy stays serious and works towards
achieving this digitalization, an increase in
productivity will follow. The educational
system will totally change, and hopefully, children and students will be more disciplined and
attracted to pursue higher levels of education, such as professional schools and universities.

“Investment 1.6: Active orientation in school-university transition

The measure aims to facilitate and encourage the transition from upper secondary school to university and to reduce
the number of university dropouts, thus helping to increase the number of graduates. The investment is expected to
raise success indicators (school attendance, improving learning levels, number of students admitted to the next
academic year, etc.) and to reduce gender gaps, both in terms of employment and participation in higher education in
all fields.
This initiative envisages the provision of courses to all students in upper secondary school to support them in the
choice of tertiary education, facilitating a better fit between preparation and vocational track, and helping students
get oriented in the school-university transition. Lectures shall be delivered by higher education professors and delivered
to students in upper secondary schools. Sustainability shall be achieved by extending training to high-school professors
such that, following this three-year program, orientation shall be available with the internal staff of high schools.

Investment 1.7: Scholarships for University Access

Italy’s macroeconomic analysis 18

 The objective of the measure is to ensure equal access to education, by easing access to tertiary education for students
with socio-economic difficulties and with a relatively high opportunity cost of advanced studies against an early
transition on the labour market. In particular, this shall be achieved through an increase in the number of
scholarships provided to university students under the RRF support.
This measure is complemented by React-EU which is expected to fund 13 000 scholarships for university access for
the year 2023 in Southern Regions.”
Mission Component Costs (EUR
million)
Mission 1 (digitalisation, innovation, M1C1. Digitalisation, innovation and security in the PA 9 722
competitiveness, culture and
tourism)
M1C2. Digitalisation, innovation and competitiveness 23 895
in the production system
M1C3. Tourism and culture 4.0 6 675
Mission 2 (green revolution and M2C1. Circular economy and sustainable agriculture 5 265
ecological transition)
M2C2. Renewable energy, hydrogen, grid and 23 778
sustainable mobility
M2C3. Energy efficiency and renovation of buildings 15 362
M2C4. Protection of land and water resources 15 054
Mission 3 (infrastructures for M3C1. Investments in the rail network 24 767
sustainable mobility
M3C2. Intermodality and integrated logistics 630
Mission 4 (education and research) M4C1. Strengthening the provision of education 19 436
services:from crèches to universities
M4C2. From research to business 11 440
Mission 5 (inclusion and cohesion) M5C1. Employment policies 6 660
M5C2. Social infrastructure, households, the 11 216
community and the third sector
M5C3. Special interventions for territorial cohesion 1 975
Mission 6 (health) M6C1. Local networks, facilities and telemedicine for 7 000
local health care
M6C2. Innovation, research and digitalisation of the 8 626
national health service Source: Council of the European Union
Total 191 499

2. Level of competition in Italy. This means a change of pace which involves the government
committed to helping those small companies who plan to grow and invest and carry forward
a real reform of the justice system as France has already done. “The government plans to increase
the number of job centers, hire 11,600 additional staff over three years and improve the infrastructure and
services of job centers.”

Mission 3 will help to bring the North and the South to the same level(we have seen in the
previous chapter the big difference between the 2 regions- the South being poorer, with less active
labor and less education.

Italy’s macroeconomic analysis 19

“Investment 1.7 - Upgrading, electrification and resilience of railways South: This investment consists in upgrading,
electrification and resilience of 650 km of railways in the South. The contracts of this investment shall cover among
others the airport link of Olbia, the port link of Augusta, the doubling of the Decimomannu-Villamassargia line,
the upgrade of the Potenza - Foggia link, the intermodal link of Brindisi. The assessment and authorisation of each
relevant project or investment shall respect all the rules and procedures set in Articles 6.3 and 6.4 of the EU
Directive 92/43/CEE and follow the national guidelines for Impact Assessment published in the Official Gazzette
of the Italian Republic N¬∞303 of 28 December 2019.”( Council Implementing Decision based on the
Commission proposal, 2023). Without any doubt, by improving the conditions in the south, the
productivity level of Italy will rise, leading to less stagnation.

Mission 4 will help the labor market by implementing different policies and services for the public.
The National Programme for the Guaranteed Employability of Workers (GOL) aims to help the
unemployed, by strengthening their activation paths and guiding them towards finding a job. Also,
a gender equality system has been implemented, aspiring to reduce the gender gap in different
sectors of activity, as well as promoting transparency in the labor market.

g. Conclusions:

To conclude, if Italy sticks to this excellent program of recovery, the overall productivity
will grow exponentially, and stagnation will no longer be a problem.

Source: Statista

Italy’s macroeconomic analysis 20

II. Conclusions

1. Conclusions for inflation:

The relationship between public debt and inflation is a double-edged sword. While inflation can
reduce the real burden of debt, making it easier for governments to manage their obligations, it
can also lead to higher borrowing costs and potentially unsustainable debt levels if not carefully
managed. The ECB's current challenge is to continue its contractionary monetary policy to achieve
the desired inflation target without slowing down economic growth or enlarging social inequalities.

As Italy navigates these economic challenges, the importance of coordination between national
fiscal policies and the ECB's monetary policy becomes increasingly clear. Balancing inflation
control with debt management and social equity will be crucial for Italy's economic stability and
the well-being of its citizens. The journey ahead requires careful policy calibration, transparency,
and a commitment to both economic efficiency and social justice.

2. Conclusions for unemployment:

The multifaceted nature of unemployment in Italy, particularly youth unemployment, calls for a
double-edged approach being responsive not just to immediate relief but also to interwoven and
sustained strategic planning. President Giorgia Meloni's policy to reduce the general
unemployment rate has performed impressively and reduced unemployment rates to the lowest
rate ever recorded since 2009. The increased dynamics in youth unemployment, sharpened by
educational gaps, missing experience, and a regional divide, ask for measures that are specifically
addressed to the problem. First and foremost, the educational outcome should be better
coordinated with the job market and incentives given to companies for employing and educating
young talent. In addition, labor market flexibility and infrastructure investment are more
measures for instant employment of workforce and longer sustainable growth perspective.
Overall, the measures adopted by the government look promising, but dealing with structural
problems of youth unemployment will be very important for the future development of Italy.

3. Conclusion for stagnation:

As mentioned in Chapter 6, the macroeconomic problem regarding stagnation and lack of

productivity has a specific recovery plan- NRRP, approved by the European Commission in
November 2023. This plan is broad, and it includes many reforms that could shape Italy into a
better state than now. Along with this plan, I would suggest that the Italian government monitor
closely the evolution of the plan with controls and new proposals in case the plan does not work.
The Italian government should be flexible and open-minded since the implementation of the
plan from paper to the real world is a difficult job, that requires special attention and dedication.

Furthermore, I strongly believe that the tax percentage on labor in Italy is outrageous, leading to
almost 45%, causing a lack of productivity (people are driven by emotions), and stagnation.
People lack the desire and the motivation to work. I suggest that an expansionary fiscal policy
(cutting taxes) should be considered until the Italian government thinks about a new tax-wage on
labor percentage. This can be a good solution, since a sum of almost 200 billion euros have been
allocated to Italy(thanks to the NRRP), and they can lower the taxes without feeling the loss.

Italy’s macroeconomic analysis 21

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