Italy is still the laggard of Europe due to a combination of lingering factors including a “quasi credit crunch” and weak demand, the former chief economist at the country’s Treasury Department said.
“The current government has done a lot, but a lot more needs to be done,” Lorenzo Codogno, former head of economic analysis and planning at the Treasury, said Wednesday in an interview with Bloomberg Television. “The banking sector is still struggling to fully recover, which basically means not enough credit to the economy in my view.”
The euro region’s third-biggest economy stagnated in the second quarter, according to a preliminary estimate by national statistics office ISTAT. Italy also faces a possible banking crisis due to the amount of its lenders’ non-performing loans.
“The medium- to long-term outlook is still pretty poor” for Italian banks, said Codogno, who is now a visiting professor at the London School of Economics. “The next couple of months will be key.”
Codogno also said Italy was likely to obtain some extra budget flexibility from the European Union.
An earthquake hit the central Italian regions of Lazio, Marche and Umbria last week. Prime Minister Matteo Renzi’s government should request “all needed flexibility” from EU for reconstruction and for a multi-year plan to boost seismic-risk prevention, Agriculture Minister Maurizio Martina said earlier in the day in an interview with RaiNews24 TV channel.