Global Business Cultural Analysis

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Italy's Global Business Cultural Analysis

Italy's Global Business Cultural Analysis

In an attempt to put Europe's most acute sovereign debt crisis into perspective, Giulio Tremonti likes to argue that Greece's economy is only as big as the northern Italian province of Verona. Verona might be flattered by the exaggeration, but the conservative Italian finance minister's point is that the bailout of Greece by its eurozone partners and the International Monetary Fund involves a relatively small sum - several times less than that set aside by Germany in 2008 to prop up its banks. “If your neighbour's house is burning it is in everyone's interests to bring water, not just for humanitarian motives but to stop the flames spreading to surrounding homes,” said Paolo Bonaiuti, Italy's government spokesman, frustrated by European prevarication ahead of the bail-out.

As the bushfire of market contagion spreads, it is clear that Italy's nerves are being tested. While, for now at least, Portugal, Spain and Ireland are next in the markets' line of fire in terms of risk attached to their debt financing needs, analysts fear the fate of the euro could be tested in Italy, the world's seventh-largest economy and more than six times bigger than Greece.( Ferdinando, 2009)

On the face of it, Italy does indeed offer cause for concern. In the past decade, its labour productivity and share of world trade have declined; economic growth has stagnated well below the European Union average. Investment is low, employment growth meagre. What is rising is public debt, forecast to grow from 115 per cent of gross domestic product last year to about 118 per cent by the end of 2010, second in Europe only to that of Greece.

Italy also suffers from structural problems, ranging from an inefficient public sector to restrictive practices in trade and the professions. Widespread corruption, an inefficient bureaucracy and a ponderous judicial system make it one of the least attractive countries in which to do business, according to the World Bank.

A succession of weak governments, often preoccupied with internal politicking rather than painful structural reforms, have failed to address these problems. The flexible small and medium-sized enterprises that form the backbone of Italy's economy like to say they survive despite, not because of, government policies.

Nonetheless over the past four years, under Mr Tremonti and Tommaso Padoa-Schioppa, his centre-left predecessor and a former European Central Bank board member, Italy has put its finances on a better footing. Pilloried a year ago by cabinet colleagues for refusing to give into their spending demands, Mr Tremonti is now hailed as a saviour.

“He was right with his cassaforte [strongbox] policy. Otherwise it would have been a disaster for us,” says Alessandro Castellano of the Sace ex­port credit agency. Italy's 2009 budget deficit of 5.3 per cent of GDP may exceed eurozone rules but looks positively sober compared to those of France and the UK, let alone Greece.( Cannistraro, 1985)

Ms Valla agrees. “A changed mentality cannot be taken for granted but with the benefit of hindsight their ...
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