We all have our own tried and true "economic indicators". My favourite is the queue (or lack of) outside Mimmo's Real Estate Agency in our village of Trevignano, just north of Rome.
When we first moved out of Rome to the village, 12 years ago, times were good for those in the real estate trade. People keen to buy themselves weekend houses would form Saturday and Sunday afternoon queues outside Mimmo's office.
For most of the 1990s, however, trade has been slack. The property market nationwide has been in a slump for much of the last seven or eight years as Italian disposable income felt the pinch of new-found national economic rigour and fiscal rectitude. Recently, however, there have been signs of an upturn (as confirmed at village level by Mimmo himself). The weekend property hunt is back in fashion.
Those of us, then, who watch the local property market closely were not surprised this week when a rather more prestigious economic analyst, the International Monetary Fund, issued an upbeat report on the Italian economy, predicting a 2.75 per cent growth rate for the next two years (compared with 1.4 per cent for 1999, the slowest in the euro zone) and praising the structural reforms of recent years.
After a two-week study, during which the IMF "inspectors", led by senior European adviser Mr Maxwell Watson, met figures such as Italian Treasury Minister Mr Giuliano Amato, Bank of Italy governor Mr Antonio Fazio, leading industrialists and trade union leaders, the verdict was broadly positive. For once, Italy was given a relatively clean bill of health, in sharp contrast to the regular knuckle-wraps of recent years from bodies such as the European Union, the OECD and Moody's Credit Ratings.
Reporting that it saw "no serious general inflation risk" for Italy (outside of oil price rises, obviously), the IMF not only predicted a 2.75 per cent growth rate (higher than that predicted by both the government and the Bank of Italy) but also argued that Italy's commitment to reducing its deficit to 1.5 per cent of GDP this year was "well within reach".
In an analysis of what it termed "major improvements in the policy environment", the IMF report praised many of the key elements in government economic policy over the last five years - large scale privatisation of state-controlled industries, the devolution of public sector responsibilities, liberalisation of the labour market and legal reforms aimed at boosting competition.
Having praised all the above policy trends, the IMF, however, then called for more of the same when suggesting that the way forward for Italy involved further privatisation (of railways and energy), income tax cuts, public sector cost cuts (especially in relation to health, education, railways and postal services), administrative reform (radical elimination of the cumbersome state bureaucracy that bedevils the Italian private sector), salary incentives (i.e. more money for more hours and/or responsibilities) as well as reform of the state pensions system.
Clearly, much of the tone and content of the IMF report will have pleased people in high Italian places. State President Carlo Azeglio Ciampi, the man who along with European Commission President Romano Prodi, probably did more than anyone to redress Italy's economic imbalances will certainly have appreciated the report.
On a more cynical level, Prime Minister Massimo D'Alema is unlikely to ignore the calls to "ease tax pressure". After all, the next general election is now little more than a year away and a healthy dose of tax cuts in the 2001 budget would do the centreleft's electoral chances no harm.
At least two major long-term considerations emerge from the IMF report, in relation to privatisation and pensions. Firstly, while the privatisation process goes on apace, it does so at some serious social cost. Rome daily, La Repubblica this week estimated that privatisation plans will lead to more than 100,000 lay-offs in state-run (or formerly state-run) entites such as Telecom Italia, national railways, the postal services, electricity supplier ENEL, state banks and others.
While labour unions were commended by the IMF for showing considerable wage restraint, future massive lay-offs at a time when unemployment remains at 11.2 per cent are certain to strain the centre-left government's sometimes uneasy relationship with the trade unions, its natural electoral constituency.
An indication of those future strains came last week when union leaders angrily rejected out of hand the "Blair-D'Alema"(the Italian Prime Minister) joint proposals (in a letter sent to EU governments) urging radical reforms of European labour markets. Union leaders dismissed the proposals as a "Thatcherite" cocktail of free-market policies that would lead to "a breakdown in relations between government and unions".
With regard to pensions, however, the IMF shows commendable realism when suggesting that such reform cannot begin until 2001 (ie. after the general election). Like everyone else, the IMF knows only too well that Italy spends 15.7 per cent of GDP on pensions compared to an EU average of 12.1 per cent while demographic considerations suggest that by 2003 or 2004 pension spending will be unsustainable.
The IMF also knows, however, that the pensions issue represents one very stingy nettle, not to be grasped close to election time, despite Prime Minister D'Alema's promise this week that he will, in fact, initiate the reform before the election.
In the meantime, the IMF expressed its satisfaction this week that the third largest economy in euro zone continues to grow, albeit more slowly than others, as explained by Maxwell Watson: "Many reforms have been carried out in recent years in Italy and the results are satisfying. However, the growth rate is still below the European average".
