Italian campaign promises gloss over grim economic realities

MILAN — Claudio Falciola joined millions of Italians who faced economic uncertainty when he lost his job as a technician in 2012 amid a long recession in the eurozone's third-largest economy.

Facing a tough job market in his early 50s, Falciola got back on his feet thanks to his own resourcefulness. He retrained as a taxi driver and invested in a license and car. It took two years, though he is now philosophical about his experience.

"I always thought that if I had to change jobs, I would become a taxi driver — never thinking it would come to that," he said.

His struggle echoes that of many Italians who have suffered through years of economic crisis and stagnation. While growth has picked up this year, it belies grim realities below the surface, few of which are being addressed directly as politicians stump for a national ballot on March 4.

Italy's economy is forecast to grow by a decent rate of 1.5 percent this year, but that still lags the wider eurozone's estimated 2 percent. The economy is smaller than it was at the start of the economic downturn in 2008, unemployment remains at a high 10.8 percent and wage growth is below 1 percent. Household savings, long held as the counterweight to Italy's enormous government debt, have dwindled.

"None of the parties seem likely to address some of the major underlying sources of Italy's economic weakness," said Jack Allen, an analyst at Capital Economics. "None have a clear plan to strengthen the banks, and neither do they intend to make it easier to do business in the country."

Economists also single out Italy's high public debt as a source of concern. At 132 percent of GDP, it is the second-highest in the 19-country eurozone after Greece. And after years of financial turmoil in Europe over high debt, some economists are wary of the fact that none of the established candidates have big plans to reduce Italy's borrowings.

Three major political blocs — a three-party center-right coalition, the governing Democratic Party and the populist Five-Star Movement — are locked in a battle for control of the government. With polls not showing any clear front-runners and more than one-third of voters undecided, analysts are focusing their predictions on the likelihood of a hung parliament.

While in many scenarios that might suggest the sort of uncertainty that investors hate, Lorenzo Codogno, head of LC Macro Advisors and a former Italian treasury chief economist, said that for these elections "this is not negative. It would force political forces to find a compromise."

Another reason not to panic, according to Allen: "Italy is used to unstable governments."

The center-right coalition brings together Silvio Berlusconi's centrist Forza Italia with the more extreme views of Matteo Salvini's anti-Europe League and Giorgia Meloni's right-wing Brothers of Italy. With Berlusconi and Salvini vying for dominance, they are trying to win voters with a flat tax and pledges to reverse pension reforms. Berlusconi set the flat tax threshold at around 23 percent while Salvini says he would set it at 15 percent.

Economists warn that such cuts are unlikely to provide a major boost as they would likely be accompanied by government spending cuts to keep Italy within the European Union's deficit limits. Salvini carries the added risk of maintaining anti-euro rhetoric.

Any doubts about Italy's commitment to staying in the euro could unsettle international investors, sending Italy's bond market borrowing rates higher and further squeezing public finances in a vicious cycle that was highlighted during the debt crisis in countries like Greece.

The populist Five-Star Movement has rolled back on its opposition to the euro, but Federico Santi of the Eurasia Group said the inexpert political leadership "would struggle to cope with any new bond market pressure," while its lack of commitment to EU fiscal rules would impact deficit reduction efforts.

With issues like immigration dominating the campaign, the splintered Democratic Party has failed to capitalize persuasively on economic improvement. "The pick-up in growth has not translated into tangible improvements in the real economy, which under most metrics is still far from pre-crisis peaks of a decade ago," Santi said.

As the economy stumbles along, it is mostly the young and old who suffer.

Youth unemployment is still nearly 33 percent despite some improvements recently. Last year, out-of-work over-50s like Falciola surpassed jobless youths for the first time, and the surest way back into the work force has been to create jobs themselves, says Bocconi labor professor Maurizio Del Conte.

"It is the age when you cost the most, and are less productive than youths," Del Conte said. "While those in their 20scan expect to emerge from the difficult situation, it is more challenging for older workers, who have more complicated family expenses."

Falciola isn't putting hopes in the government for securing his future. His political leanings are toward the right, but he is not even sure he will vote this round, despite the fact that future decisions could affect him directly.

"If anyone liberalizes taxi licenses, I'll shoot myself," he said, with a good-natured chuckle.