Fixing Italy's Ailing Economy Won't Be Easy

Italy's new prime minister, Mario Monti, said Friday that he'll meet with other European leaders next week to lay out his plans for reforming Italy's economy. Investors have been growing more concerned about Italy's ability to pay off its debts — and that's driven the cost of borrowing higher. But Italy's problems won't be easy to fix. The country has seen its growth rate slow to a crawl in recent decades, and unemployment — especially among the young — has risen. Jim Zarroli

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From NPR News, this is ALL THINGS CONSIDERED. I'm Guy Raz.

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And I'm Melissa Block. One key to resolving the financial crisis in Europe is Italy. The new prime minister, Mario Monti, has to get the economy moving so the country can pay off its debts. And he says he will meet with other European leaders next week to lay out his plans to do that.

But Italy's problems won't be easy to fix. Growth is anemic. It has been for years. And unemployment has risen, especially among the young. NPR's Jim Zarroli is in Milan.

JIM ZARROLI, BYLINE: If Italy's economy is ever to prosper again, it will be because of companies like TCI. The company is located outside Milan, in the city of Saronno, on a busy highway lined with new office parks. It might be a suburb in California.

Inside the company, women are bent over tables making custom components for lighting systems. Annalisa Rinaldi(ph) says much of what's made here gets exported.

ANNALISA RINALDI: These pieces will go in Europe, will go in South America, will go in Russia, will go in the world, all over the world. Even to China because TCI is one of the few Italian factory that sell to Chinese and not buy from Chinese.

ZARROLI: But the success of companies like TCI obscure some big problems in the Italian economy. Bill Emmott is the author of a best selling book about Italy.

BILL EMMOTT: So Italy really has been a very slow growing economy with declining competitiveness now for virtually 20 years.

ZARROLI: Emmott says this wasn't always true. After World War II, Italy rapidly industrialized its growth rate rival, Japan's. But by the 1980s, growth had stalled. Emmott says wages had risen, making Italian companies less competitive.

Economist Francesco Giavazzi of Bocconi University says Italy today has innovative companies that succeed under the right conditions.

FRANCESCO GIAVAZZI: But they have two problems. One, there are not many of them. And second, they don't grow. They remain very good, but small firms.

ZARROLI: Giavazzi says Italy has a culture of family-owned businesses that are financed by banks instead of the stock market and they can have trouble building the scale they need to compete globally. Giavazzi says Italian law also tends to be much stricter on big companies than small ones, which discourages expansion.

GIAVAZZI: So, if you are below 20 employees, you basically can do anything you want with your workers. You can fire them overnight. Above 20 employees, it becomes very difficult.

ZARROLI: To get around the laws, many companies pay workers under the table or hire them under temporary contracts with few job protections. Finding a permanent job is a challenge, especially for the young, and as the debt crisis drags on in Europe, unemployment is growing worse.

Deborah Micon(ph) hasn't worked in two years and she's bitter about the economy.

DEBORAH MICON: (Through Translator) My husband has to do odd jobs to get by. The problem, as I see it, is that the politicians look after their own interests and they don't provide for the people.

ZARROLI: Many Italians are expecting the new government to tackle the unemployment problem, but with its high debt levels, Italy faces painful budget cuts. Bill Emmott says that as the government begins to draw up a roadmap for reform it has to meet tough political challenges.

EMMOTT: That roadmap will need to balance deregulation, liberalization, with equity, with social justice, with the sense that everyone is sharing the pain and the loss of privileges and protections equally. And that will be the most difficult task.

ZARROLI: The question is whether the new government has the time and political will to really change the system. If not, it will be that much harder to bring real growth back to Italy.

Jim Zarroli, NPR News, Milan.

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