Which country is deeper in the hole, Greece or Italy? Obviously Greece – the country has been in near recession or depression since the 2008 financial crisis.
But extend the measurement period and it is Italy that emerges as the dud economy. Between 1998 and 2016, real gross domestic product per person in Greece rose more than 3 per cent, suggesting the poster child of the European debt and economic crisis is still wealthier now than it was two decades ago – as incredible as that sounds. Italy? Real GDP per person is actually down 0.4 per cent since 1998, making it the big loser among the 19 European Union countries that use the euro.
Italy's deterioration was one of the main messages at this week's annual conference of the Rimini Centre for Economic Analysis, an Italian economic think tank. Speaker after speaker trotted out data that made you think Italy is bent on embracing what we used to call Third World status (disclosure: I am a trustee of the RCEA and was a speaker at the conference).
Why should anyone care about Italy's downfall? Italy is more than the land of prosecco, Roman arenas and Michelangelo. It is a Group of Seven country and the euro zone's third-largest economy. It is Europe's second-biggest manufacturer, after Germany, and has the dubious distinction of overseeing the world's third-largest debt market. With some €2.2-trillion ($3.3-trillion) in liabilities, its debt-to-GDP is about 135 per cent, up from about 100 per cent a decade ago.
In other words, the EU and the euro zone are goners if Italy fails, and the message would not be lost on Emmanuel Macron, the new French President, and German Chancellor Angela Merkel. While they would never admit it publicly, Italy must be a Latin zombie land to them, the greatest risk to their plans to make the EU stronger and more integrated.
Before Mr. Macron was elected, the EU and the euro zone were in trouble. Britain had decided to bolt from the EU and populist parties were on the rise across the continent.
With Mr. Macron and his enthusiastic, pro-EU and pro-euro policies firmly on the agenda, there is a new sense of optimism in Europe. It is based on the general belief the Franco-German alliance has been saved and could reinvigorate what's left of the EU. But can Mr. Macron and Ms. Merkel persuade the Italian government to get its reform act together? They'll try, knowing that France and Germany alone cannot save the EU.
Their effort could fail. While Italy is out of recession, virtually every economic indicator is a national and international embarrassment. Its growth rate is half the euro zone average. At expected growth rates, the country will not reach its pre-2008 GDP level until 2025. Unemployment rates – 12 per cent nationally and 35 per cent among the young – are atrocious. Ditto productivity growth and barriers to competition. The World Bank's latest ease-of-doing-business survey puts Italy in 50th spot, below Serbia, Moldova and Russia .
The grim numbers are not the biggest problem. Politics is. There is little appetite for reform in Italy. The previous prime minister, the allegedly reform-minded Matteo Renzi of the centre-left Democratic Party, cut short his save-Italy campaign when he realized it would cost him votes as the country's powerful lobby groups, from taxi drivers to pensioners, dug in. He resigned in December, when he lost a referendum on constitutional changes.
His bid to become the next prime minister has been jeopardized by the rise of the Five Star Movement (M5S), the populist, Euroskeptic party that is leading in the polls and whose economic policies are ill-defined. If M5S wins, the grand French-German plan to jolt the European project and growth back to life would be thrown into reverse. If Mr. Renzi wins, the proven Italian trend of stumbling from one crisis to another might remain intact.
Italy faces a choice: reform and add momentum to the European project or choose not to reform and remain a drag on the project. In time, the latter choice would surely see it dismissed from the euro zone or make it a ward of the EU and the International Monetary Fund, a Greece writ large.
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Eric Reguly