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Tuesday, September 05, 2006

Italy's Reform Programme Under Strain

The strains are begining to show in the Prodi coalition, and it is very difficult to see serious reforms being implemented in this environment. Italy's rapidly ageing population presents new and important challenges to the Italian government, but somehow I am sceptical that the nettle is gowing to be grasped.

One of the striking details is the retirement age, which they are only now trying to raise to 60. Clearly Italy's low retirement ages are a product of a much sorter earlier life expectancy and a much thicker population pyramid. The fact that they are still as low as they are is also some kind of reflection on the pace at which Italy is able to reform itself, which evidently falls far short of the challenge.

OTOH pensions for many in Italy, like in Spain, are undoubtedly very low. In this sense the German problem is a bigger one, since the welfare system there is much more extensive and much more expensive, and simply going for the Italian model at this stage won't work in a German cultural environment.

However I still think Italy is the weakest link in the international economic chain, and certainly the one to watch.

Incidentally I have a post today on Demography Matters which looks at how population ageing is affecting one Italian region, Liguria.

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