Print Email Facebook Twitter Lost in Deflation Title Lost in Deflation: Why Italy’s Woes Are a Warning to the Whole Eurozone Author Storm, S.T.H. (TU Delft Economics of Technology and Innovation) Date 2019 Abstract Using macroeconomic data for 1960–2018, this article analyzes the origins of the crisis of the “post-Maastricht Treaty order of Italian capitalism.” After 1992, Italy did more than most other Eurozone members to satisfy EMU conditions in terms of self-imposed fiscal consolidation, structural reform, and real wage restraint—and the country was undeniably successful in bringing down inflation, moderating wages, running primary fiscal surpluses, reducing unemployment, and raising the profit share. But its adherence to the EMU rulebook asphyxiated Italy’s domestic demand and exports—and resulted not just in economic stagnation and a generalized productivity slowdown but in relative and absolute decline in many major dimensions of economic activity. Italy’s chronic shortage of demand has clear sources: (1) perpetual fiscal austerity; (2) permanent real wage restraint; and (3) a lack of technological competitiveness, which in combination with an overvalued euro weakens the ability of Italian firms to maintain their global market shares in the face of increasing competition of low-wage countries. These three causes lower capacity utilization; reduce firm profitability; and hurt investment, innovation, and diversification. The EMU rulebook thus locks the Italian economy into economic decline and impoverishment. The analysis points to the need to end austerity and devise public investment and industrial policies to improve Italy’s “technological competitiveness” and stop the structural divergence between the Italian economy and that of France/Germany. The issue is not just to revive demand in the short run (which is easy) but to create a self-reinforcing process of investment-led and innovation-driven process of long-run growth (which is difficult). Subject demandEurozoneexport growthfiscal austerityItalian macroeconomic performancereal wage restraintsecular stagnation To reference this document use: http://resolver.tudelft.nl/uuid:13677cf5-50c3-472b-998b-523beadfe955 DOI https://doi.org/10.1080/08911916.2019.1655943 Source International Journal of Political Economy, 48 (3), 195-237 Part of collection Institutional Repository Document type journal article Rights © 2019 S.T.H. Storm Files PDF Lost_in_Deflation_Why_Ita ... zone_1.pdf 2.03 MB Close viewer /islandora/object/uuid:13677cf5-50c3-472b-998b-523beadfe955/datastream/OBJ/view