With Italian Prime Minister Silvio Berlusconi on the way out of power, Italian debt has risen to record levels with few solutions in sight.
An economist at Washington University in St. Louis who was born and raised in Italy warns that the Italian troubles may foreshadow what’s at stake for the United States as well, no matter how much more reliable its public debt may appear today.
“Berlusconi’s announcement contains an important lesson for the U.S.,” says Michele Boldrin, PhD, the Joseph Gibson Hoyt Distinguished Professor in Arts & Sciences.
“Let’s change direction soon and rediscover competition, innovation and entrepreneurship as the drivers of economic growth,” he says.
“Let’s ask our politicians to reduce or eliminate the power of monopolies in the American economy, to reduce wasteful spending and populist transfers and go back to sound public finances, to favor social mobility and so on.
“Let’s do it now that we are still on time, before our Berlusconi arrives.”
While Boldrin says the U.S. is a country at risk of decline if it does not change direction soon — which it does not yet seem to be doing, he says — Italy found itself in the very same situation several decades ago.
“For failing to act on time it has started to decline for good during the last few years,” Boldrin says. “Changing in such circumstances is particularly difficult.”
Berlusconi leaving office is good for Italy, Boldrin says, but not decisive until it is clear who will replace him.
“Berlusconi still has the support of nearly half of Parliament, which may lead to bargaining and to a new prime minister who may easily be a hostage to Berlusconi for congressional support,” says Boldrin, who is a native of Padua, Italy.
Unfortunately, Berlusconi’s political opposition is so heterogeneous and confused about what ought to be done, Boldrin says, it is most unlikely they will agree on anything substantial from an economic viewpoint. Hence, he thinks a passage of power from the current majority to the opposition is unlikely.
“Italy may, instead, turn to a transition government that could implement parts of the European Central Bank’s requests and then prepare for elections,” Boldrin says. “This would be good, but if those elections take place with the current electoral law, the outcome may be a parliament still unable to change the country.”
The key thing, he says, seems to be that the Italian people are far from recognizing they live in a declining country and that dramatic measures should be taken to reduce public waste, increase the efficiency of the public sector and the productivity of the private one.
“Many opposing lobbies, monopolies and interest groups are blocking any change,” Boldrin says. “This is a problem that goes beyond Berlusconi and that Italy has yet to face if it wants to stop its decline. Hopefully, the current dramatic financial shocks may force the Italian electorate to face reality in the near future.”