Brussels – Reforms, reforms, reforms. Time and again, the European Union in its various forms—the European Commission, the Council of the European Union, the Eurogroup—has called on national governments to adopt a decisive policy agenda in the name of competitiveness and resilience to external pressures. The call for structural reforms stems from the crises the eurozone experienced in the early 2000s, and since then this call has never ceased, as Italy, which continues to be under pressure, is well aware. Now, experts at the European Central Bank are seeking to contribute to the debate: “Can structural reforms unleash private investment?”, asks a recently published working paper. The answer is yes.
The research is based on the fact that the empirical evidence directly linking structural reforms to private investment “remains surprisingly scarce.” Hence the studies. The ECB’s econometric analysis reveals that “major labour market reforms generally increase the level of real private investment by 5 per cent cumulatively within six years, while major product market reforms have an impact of 3 per cent.”
While the growth rates in capital inflows may appear limited at first glance, this is not the case. Reforms in the labour and product markets, taken together, “can significantly stimulate private investment in the medium term, although their effects vary depending on the type of reform and the national context.”
However, the experts in Frankfurt emphasise everything relating to the system governing the interaction between businesses and employees: “Labour market reforms are generally more effective at stimulating private investment than product market reforms, probably due to the sector-specific nature of most of the product market reforms included in our sample.” This provides a clear indication for everyone, including Italy, which is once again called upon, after ten years, to make significant improvements in this area.
The bad news, for Italian politics and beyond, does not end there: government stability is not enough. It may be a necessary condition, but it is not sufficient to stimulate and attract private investment. Analyses carried out by the ECB show that “the response of investment to structural reforms is significantly stronger in economies with higher institutional quality and broad access to external finance.” These are two key factors which, “together, provide the private sector with the economic stability and financial resources needed to make long-term investment decisions with confidence.” Effective policies and experienced politicians are needed to convince private investors, not amateurs. This, too, is a clear warning.
English version by the Translation Service of Withub
