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Can Italy Be Fixed?

11:07 AM, Nov 18, 2011 • By DALIBOR ROHAC
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In the public and private sector alike, powerful webs of insiders forcefully resist any attempts to erode the sources of their rents. The best-known example is the tightly knit relationship between, Banco Popolare di Milan, Mediobanca, and Assurazioni Generali, which have been, through joint efforts, resisting restructuring for years. The government also keeps controlling shares in large electricity, oil and gas utilities, and uses it every three years for what can be called a lottery reshuffling of the companies’ leaderships, with dismal effects on economic performance.

An exit from the eurozone could give Italians an opportunity to regain competitiveness and reduce the pain of the needed reforms. However, it is not clear that the reforms are going to occur before Italians reach a point when a simple continuation of the present model of crony, rent-seeking capitalism proves unsustainable. And that means, in Italy, things might need to get a lot worse before they get better. That does not bode well for the reform ambitions of Mario Monti and his new team.

Dalibor Rohac is deputy director of economic studies at the Legatum Institute in London.

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