THE IMPACT OF ANTI-CRISIS MEASURES, AND THE SOCIAL

AND EMPLOYMENT SITUATION: ITALY

Elisa Borghi, Università Carlo Cattaneo – LIUC

KITES- Università Bocconi

European Economic and Social Committee

Group II Extraordinary Meeting

Brussels, 28th February 2012

Contents

• Relevant measures 2008-2011

• Main effects

• The decree ‘Save Italy’: expected effects

• Conclusions

Introduction: the crisis

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

Q1-20

07

Q2-20

07

Q3-20

07

Q4-20

07

Q1-20

08

Q2-20

08

Q3-20

08

Q4-20

08

Q1-20

09

Q2-20

09

Q3-20

09

Q4-20

09

Q1-20

10

Q2-20

10

Q3-20

10

Q4-20

10

Q1-20

11

Q2-20

11

Q3-20

11

Var. Cong Var. Tend

Quarterly GDP (growth rate)

Relevant measures 2008-2011

• November 28th, 2008 Anti-crisis decree (35 articles providing for an economic recovery package amounting to €6.4 billion)– Extraordinary bonus to families– Fund for Employment and Training – Tax relief on productivity bonuses (extension)– Social Card

• Urgent measures approved in 2009– Decree 5/2009, 10th February 2009– Decree 1st July 2009 n.78– Law n.121/ 3rd August 2009

• Budget Law 2010 (December 2009)

Relevant measures 2008-2011

• May 2010 – “Urgent measures for financial stability and economic competitiveness”

• Budget Law 2011, December 2010• Measures for financial stability:

– July 2011, n. 98/2011 and 111/2011– August 2011, n. 138/2011 – December 2011 ‘Save Italy’ decree

(201/2011)

MAIN EFFECTS:GDP, PRIVATE CONSUMPTION, EMPLOYEES

-6,0%

-5,0%

-4,0%

-3,0%

-2,0%

-1,0%

0,0%

1,0%

2,0%

3,0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

GDP Employees Consumption

Fonte: ISTAT GDP, Private consumption: real percentage changes

Household confidence index.

85,0

90,0

95,0

100,0

105,0

110,0

115,0

07,01 07,02 07,03 07,04 08,01 08,02 08,03 08,04 09,01 09,02 09,03 09,04 10,01 10,02 10,03 10,04 11,01 11,02 11,03 11,04

Source: ISTAT

Estimated effect of a reduction of 10% of this index reduces consumption of 0.5% with an effect on GDP of -0.3%

Consumption• Poverty has increased• Disposable income and saving propensity

245.000

250.000

255.000

260.000

265.000

270.000

275.000

280.000

285.000

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

18,0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2006 2007 2008 2009 2010 2011

Gross disposable income (right scale) Saving rate (lef t scale)

Employment

0

500

1.000

1.500

2.000

2.500

I trim 08

II trim 08

III trim 08

IV trim 08

I trim 09

II trim 09

III trim 09

IV trim 09

I trim 10

II trim 10

III trim 10

IV trim 10

I trim 11

II trim 11

III trim 11

People seeking employment

Employment

OrdinaryExtraordina

ryIN

DEROGATotal

2005 142 90 13 246

2006 97 111 24 231

2007 71 88 25 184

2008 113 87 28 228

2009 576 216 122 914

2010 342 489 373 1.204

2011 226 411 316 954

Redundancy Fund – CIG (million of authorized hours)

Source: INPS

Unemployment rate Total and people 15-24 years old

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

40,0

45,0I Q

uart

er

II Q

uart

er

III Q

uart

er

IV Q

uart

er

I Qua

rter

II Q

uart

er

III Q

uart

er

IV Q

uart

er

I Qua

rter

II Q

uart

er

III Q

uart

er

IV Q

uart

er

I Qua

rter

II Q

uart

er

III Q

uart

er

2008 2009 2010 2011

Unemployment rate 15-24 years old Unemployment rate Total

Source: ISTAT

Wages and inflation rate. Percentage changes on previous quarter

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0Wages Inflation

Effects of the ‘Save Italy’ decree

2012 2013 2014

Reduction in the net public debt (million eur) -20243 -21318 -21431

- % of GDP -1.3 -1.3 -1.3

Effect on families -1.5 -1.5 -1.5

Of wich: reduction in disposable income -0.4 -0.6 -0.6

Of which: increase of indirect taxation -1.1 -0.9 -0.8

Effects on companies -0.1 0.0 0.0

Conclusion

• Italy has been severely hit by the crisis in terms of employment and social conditions

• Fiscal policy: mainly increases in taxation

• Spending cuts can worsen families’ economic conditions, particularly poorest ones.

• High indebtedness and contagion of the sovereign debt crisis makes the trade-off between stimulus and austerity more severe

Conclusions

• Urgent measures prevented the introduction of structural interventions fixing the weaknesses of the Italian economy.

• Increases in taxation contribute to the reduction of disposable income and consumption, leading to an increase in poverty.

• Spending cuts, in particular of health care expenditure and of transfers to regions, have a greater impact on poorest families.

• • Worse labor market conditions during the crisis and

structural weaknesses become more evident.

• To overcome the crisis, structural reforms are needed: the ‘grow Italy’ decree