Italy On Track to Recover From the Economical and Social Effects of COVID-19

For years, Italy was associated with the image of ancient ruins, beautiful views, and tourism. According to the Organisation for Economic Cooperation and Development (OECD), over 81 million international tourists visited the country in 2015, and the tourists’ expenditure accounted for 11.8% of Italian GDP. However, Italy’s economy and tourism have drastically decreased due to the SARS-COV-2 pandemic. As a consequence, Italy's annual GDP decreased from $2.091 trillion in 2018 to $1.889 trillion in 2020, as calculated by the World Bank. Yet, stagnation was not the only consequence for Italy, as over 150,000 people have passed away from COVID-19 so far (as reported by The New York Times). These dreadful events contributed towards social disruption, which led to political deformation as Giuseppe Conte, then the prime minister of Italy, resigned from office. This led to yet another socio-economical crisis.

Remaining at the time the sole official ruler of Italy, president Sergio Matarella summoned Mario Draghi to form a semi-technocratic government, which Draghi accepted. Mario Draghi is an Italian economist most notably recognized for serving as the Governor of the Bank of Italy for five years and President of the European Central Bank for eight years. To overcome the economic downfall of Italy, Draghi appointed several major plans of socio-economic reformations that the government will adopt in the following years.

One of the significant duties that Draghi had to face as a newly appointed Prime Minister was creating the recovery plan, which includes the division of over €191 billion set by the EU for Italy’s post-pandemic economic recovery. The plan indicates that 37% of the fund ought to be employed for climate objectives, including promotion of renewable energy, reduction of emission of greenhouse gas, and improving the energy efficiency of the buildings, as stated in the European Commission’s Press release. Furthermore, 25% of the fund will be devoted to Italy’s Digital Transition, including the development of 5G networks and digitalization of public administration. The remaining 38% will be dedicated to healthcare, education and labor market, public administration and justice system, business environment, and social and territorial cohesion. The plan was approved by the European Commission (EC) on the 22nd of June 2021 and, according to Research Professional News, the first €24 billion was sent on the 13th of August.

One of the major changes that have been adopted so far is the reform of the criminal and civil justice systems. According to the Foreign Policy, Italian courts have been the slowest judicial institution in the whole European Union for many years. Aside from creating frustration among citizens and deceleration of state-based economic activity, the slow-working justice system is a faucet for capital gains from outside the country. Foreign companies are less likely to invest in the Italian economy, as they are not guaranteed that any lawful disputes will be resolved quickly should some problems arise. That is why the new government introduced a new reforming policy that introduced clerkship in the justice system. This practice, before unheard of in Italy, allows the pre-law students to acquire experience in the court system. In effect, future judges acquire law knowledge in college that they can simultaneously employ in their internship. The newly reformed Italian justice system is expected to improve its working pace in the upcoming months, thus attracting foreign investors who are an essential factor in an open-market economy.

While Draghi’s plan to rebuild the Italian economy could lead the country towards economic upturn, there is still not enough data to assess the actual effectiveness of the program. As only seven months have passed since the EC’s approval of the plan, Italy’s government is still in the process of implementing the social and economic reforms. Yet, the data gathered by Federal Reserve Economic Data (FRED) shows that Italy’s GDP has increased by roughly $70 billion in the third quarter of 2021 compared to the second quarter of 2020. This constitutes positive expectations about government policies which consequences economists will have yet to evaluate.

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