Salient to Investors:

Simon Johnson at MIT Sloan writes:

Optimists say Europe is on the mend – the ECB is maintaining stimulus, Germany’s export potential remains large, France will continue to be a haven for investors, while struggling countries such as Greece and Portugal represent less than 1/10 th of the euro area’s economic output and population.

However Italy is the 3rd largest economy in the euro area and its gross debt is 1.3 times GDP, one of the largest in the world, though countries have grown their way out of even larger debt burdens.

Italy’s big problem is that it is growing far too slowly – an average annual inflation-adjusted rate of 1.2 percent in the 1990s, versus the euro area’s 1.8 percent. Since 2000, Italy’s average growth rate fell to 0.4 percent versus 1.3 percent for the euro area.

Yet Italy’s investment rate is higher than Germany’s, infrastructure investment is in line with euro-area averages, education has improved steadily, and labor-market and product-market regulation have converged toward Germany’s levels. Even R&D has improved in recent years.

The main obstacle to growth in Italy is governance, such as corruption and rule of law. Italy also faces an aging population and a lack of immigration.

Italy’s national averages mask important regional differences.

The World Bank says Italy has 1.63 newly registered corporations per 1,000 working-age people, versus 10.41 in the UK and 1.35 in Germany.

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