Expert on Italian economy

CNC report from Rome, New York
Added On February 23, 2013

Italy's general election to be held this weekend is drawing attention from all over Europe, even the world.

The country is at a crossroads whether to continue on the path of the fiscal compact, an EU treaty requiring balanced budgets, or whether to water down strict austerity measures.

Analysts warn an unstable outcome could shake the economy and set off shockwaves through the eurozone.

Italians will cast their ballots on Sunday and Monday as they grapple with the longest recession in the euro area's third economy in two decades.

Both Silvio Berlusconi and Mario Monti are running in the voting as heads of coalitions.

But some experts say the candidate most likely to come out on top is center-left candidate Pier Luigi Bersani, a former cabinet minister.

What is less clear is how strong Bersani will finish.

SOUNDBITE (ENGLISH) GIAN LUCA CLEMENTI, NYU Stern School of Business
"I think, it may still blow up. What I expect, I have no doubt, a center-left coalition run by either Mr. Bersani or by Mr. Monti, will give it its best shot in order to essentially abide by the request of the European partners in terms of containing the budget deficit. The problem is, what I expect them to do is to achieve that goal by raising taxes further rather than to decrease expenditures."

Economists worry that the election might produce a weak government incapable of decisive action, spooking investors and igniting a new debt crisis.

SOUNDBITE(ENGLISH) GIAN LUCA CLEMENTI, NYU Stern School of Business
"You evoked the right name. Mrs. Thatcher. That kind of caliber of reform that Italy needs is of that type that England, the United Kingdom undertook under Mrs. Thatcher. A reform that dramatically declines the grip of the government, that the government has on the economy. Right now, let's say in the banking market, the government and politics in general have a very tight grip on the way in which banks allocate loans all around the country, so that's a major obstacle to growth in the country."

After 6 consecutive quarters of economic contraction and more than a decade of close-to-zero GDP growth, the future Italian leadership will have to make tough choices.

SOUNDBITE(ENGLISH) GIAN LUCA CLEMENTI, NYU Stern School of Business
"I can tell you what economists believe at large what the new government will do which is finally to start with agenda reforms that the country badly needs. The country needs major reforms in the organization of markets and in the regulation of markets, it needs badly to decrease the role of government in the economy."

Italy's unemployment rate is stagnant at more than 11 percent, while the jobless rate among youth is as high as 36 percent.

Experts see a lack of competitiveness and old-fashioned labor laws as some of the main reasons for Italy's economic woes.

SOUNDBITE(ENGLISH) GIAN LUCA CLEMENTI, NYU Stern School of Business
"Right now the major issue in the Italian labor market is duality between people that are older than 45 and people younger than 45. People older than 45, they will hire them with the old system of social protections which means essentially that they have tenure in their jobs, they are not fireable. Instead, most people younger than 45 were hired under a new regime that essentially gives them very little or no guarantee whatsoever. So the first thing is they have to rebalance rights across the older generation and the younger generation."

The election results will be announced Monday, after polls close.