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Italy faces a 'worrying situation with no ideas for the future,' former leader warns

Key Points
  • "There is a big problem for Italy and big problem for Italy's lack of investment and the duration of the public finance situation," former Prime Minister of Italy Enrico Letta told CNBC at the Ambrosetti Workshop.
  • Speaking at the Ambrosetti Workshop on the shores of Lake Como, Padoan told CNBC's Steve Sedgwick that "the issue of lost confidence is still hanging over the country."
  • Italy slipped into recession when its economy contracted for the second consecutive quarter at the end of 2018.
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Issue of lost confidence still hanging over Italy: Ex-finance minister

Investors have lost confidence with Italy and its future remains uncertain, former prominent politicians in the country have told CNBC, taking aim at the current coalition government seated in Rome.

Former Italian Finance Minister Pier Carlo Padoan said the current Italian government has damaged confidence and investment into the southern European economy. Speaking at the Ambrosetti Workshop on the shores of Lake Como, Padoan told CNBC's Steve Sedgwick that "the issue of lost confidence is still hanging over the country."

Meanwhile, Enrico Letta, the former prime minister of Italy called it a "worrying situation." "There is a big problem for Italy and big problem for Italy's lack of investment and the duration of the public finance situation," Letta told CNBC at the Ambrosetti Workshop.

"I think it is a worrying situation with no ideas for the future from the present government. It is just redistribution with no idea on how to grow. The country will face the second quarter for the year very very hard," Letta said.

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Italian economy a 'worrying situation,' country's former leader says

Both Letta and Padoan had prominent roles for their center-left Democratic Party during its time in power. In June last year, a coalition of the anti-establishment Five-Star Movement and the right-wing Lega took office following elections in March which resulted in a hung parliament.

Recession

Italy slipped into recession when its economy contracted for the second consecutive quarter at the end of 2018. Gross domestic product fell a quarterly 0.2% between October and December, following a 0.1% decline in the third quarter, and was up 0.1% on an annual basis, national statistics bureau ISTAT reported in January.

The present Italian government has often pointed out that the country's economy has been weakening since early 2017 and has recently been hit by a slowdown in Italy's main trading partners.

The coalition approved an expansionary budget in December aimed at heading off recession. The budget, which was watered down after European Commission said it would not lower Italy's high public debt, features a new income support scheme for the poor and allows people to retire earlier. It also slashes taxes for the self-employed.

However, Padoan told CNBC that these reforms haven't had much impact on the economy.

"They were badly implemented and added to the uncertainty. The net effect is the economy is entering recession and will stay there for some time," Padoan said.

Italy's public debt pile is 131% of its GDP, and at 2.3 trillion euros ($2.6 trillion) is the second largest in the euro zone.

Scaling back growth forecasts

Reports of Italy cutting its growth target have been in the news lately. Last week, Italy's Il Sole 24 Ore reported that the government is set to downgrade its GDP forecasts along with introducing a package to boost growth. Bloomberg on Thursday reported that Italy is set to cut its 2019 growth forecast from 1% down to just 0.1%.

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Italy has had a growth issue for two decades, OECD's chief economist says

"Italy has had a growth issue for about two decades now. It's just that it is becoming more acute in a world that is as uncertain as it is today with trade tensions, with all the complexity of politics in Europe," Laurence Boone, chief economist at thee OECD (Organisation for Economic Co-operation and Development) told CNBC in Italy.

"So it is really becoming to the fore. What we need to address first and foremost for Italy is really the growth and productivity issue as well as the inequality one," Boone said.

Meanwhile, Italian economic woes along with larger uncertainties around the world pushed the European Central Bank (ECB) to announce another series of cheap loans in March. The loans, aimed at stimulating bank lending is the third injection of stimulus of this kind from the ECB.