Italy's financial tremors rumble on for Berlusconi - Heather Stewart looks behind the G8 summit

Silvio Berlusconi will welcome world leaders to the earthquake-hit city of L'Aquila this week when he hosts the G8 gathering of western nations. But while these shindigs are traditionally an opportunity to show off the host nation's economy at its best, the credit crunch has left Italy with little to boast about. Already hemmed in by hefty public debts - worth more than 100% of GDP - and an uncompetitive export sector, the country has been plunged into a severe recession by the collapse in world trade and analysts say it could take many years to recover. Industrial output fell so sharply in the first three months of this year that it is now back to the levels of two decades ago. "Italy's quite reliant on manufacturing exports, and that's been hit particularly hard," says Zach Witton, of Moody's economy.com. He expects a sharp fall in GDP of more than 4% this year and predicts that the economy will continue shrinking in 2010, with pre-crisis rates of growth not returning until 2012 at the earliest. Other governments, including Germany's, where Angela Merkel's finance minister, Peer Steinbrück, was initially scathing of "crass Keynesianism", have increased public spending to support their economies through the market turmoil. But Rome's coffers were already bare before the crisis began. "They've got one of the highest levels of public debt in Europe, and that is constraining the opportunity for fiscal stimulus," says Witton. Berlusconi's antics with a string of young women have caught the headlines, but many voters have less titillating concerns on their minds. "The Italian economy, like its prime minister, is looking more and more debilitated: it may be capable of toughing it out, but at considerable and growing cost," says Maya Bhandari, of Lombard Street Research. She warns that a "lost decade" of sickly growth and declining market share is set to turn into another 10 years of lagging behind.

Continue ...

http://www.guardian.co.uk/business/2009/jul/05/g8-summit-italy-silvio-berlusconi