This article is part of our special report An industrial policy for Europe ?.
SPECIAL REPORT: Italy’s battle to rescue its ailing industry has become emblematic of Europe’s economic woes, especially in the south. But a government campaign to save national firms from bankruptcy seems to be gaining traction, also thanks to backing from Pope Francis.
The last few weeks have brought a spate of bad news for Italy’s ailing iron and steel industry.
Both the Ilva plant in Taranto (Apulia) and the Acciai Speciali Terni (AST) plant in Terni (Umbria) faced bankruptcy or a foreign takeover, putting thousands of jobs at risk.
The process may seem inexorable at first. As in many other Euroepan countries, Italian manufacturing in sectors such as textiles and steelmaking have either been shifted to China and India, or faced with foreign buyouts, often to the detriment of product quality and – of course – employment .
But some steps recently taken by Matteo Renzi’s government may help reverse that trend.
In November, the government told Italy’s state lender, the Cassa Depositi e Prestiti (CDP), to step in to rescue the Ilva steel plant. New public money for the steel sector was injected in CDP to prevent Ilva from falling into ArecelorMittal’s hands.
80.1% of CDP is held by the Italian government. A broad group of bank foundations holds 18.4%, while the remaining 1.5% is held in treasury shares.
Crucially, the CDP can rely on solid financial resources as it manages the greater part of Italian citizen’s savings, which represents its main source of funding.
Pope Francis: ‘no family without work’
The sense of urgency is widespread in the Peninsula and has reached unexpected corners of Italian society.
Only days ago, Cardinal Angelo Bagnasco, an influential representative of the conservative group in the Catholic Church, said “Italy must save its industry and Ilva”.
Last month, Pope Francis met with hundreds of laid off workers from the ailing Meridiana airline, saying that taking action to save jobs in industry should be considered as a moral duty.
“I hope that a fair solution may be worked out, that considers above all the dignity of the human person and the essential needs of the families concerned,” the Pope said.
On many occasions, Pope Francis has called for efforts to protect the environment, ensure decent work for all, and provide protection for the family, which he says is an essential part of human and social development.
“Please, I appeal to all those with responsibility: no family without work!” Francis said in comments reported by Vatican Radio.
The Pope’s attention to social issues has undoubtedly helped focus minds.
But this may be insufficient. For years, Italy has struggled to maintain its industrial base. And even the country’s greatest industrial victories can turn into defeats.
Take the automotive sector. 2014 marked a turning point for Fiat, Italy’s leading automaker and national champion, when it closed a deal to take over America’s ailing brand Chrysler.
Initially celebrated as a national triumph, the Chrysler takeover also quickly revealed an ugly side. Gradually, Fiat is leaving the country. The new merged group, Fiat Chrysler Automobiles (FCA), has its new legal head office in the Netherlands, and fiscal residence in United Kingdom. Following the merger, the company extended its lay-off schemes to all its Italian plants.
These losses may at times be compensated elsewhere. According to research by Prometeia and Intesa San Paolo Bank, Italy’s exports have risen over the last few months, especially in the pharmaceutical and automotive sectors.
These were also helped by government reforms. “Thanks to the job labour reform, to the ‘Sblocca Italia’ law and the reform of the Public Administration recently approved, Italy is on the right track,” said Giorgio Squinzi, the President of Confindustria, the Italian employer’s organisation.
However, domestic demand remains weak. After seven years of economic slowdown or recession, many enterprises still suffer from the credit crunch. As in the rest of Europe, Italy struggles to promote a friendlier business environment and attract new investment.
“After a long period of austerity, our challenge is to promote jobs and recovery,” Squinzi said, pushing for reforms such as the Job Act to be adopted before new elections are held.
Italians take lead at European level
At the European level, Italy has played a leading role in promoting a re-industrialisation agenda.
After years of neglect, industry is enjoying a form of renaissance – at least in terms of perception by public opinion and politicians.
During its six-month stint in the second half of this year, the Italian Presidency of the EU Council has tried pushing industrial policy as much as possible.
Efforts culminated with the adoption of Council Conclusions on 25 September which aimed at mainstreaming industrial competitiveness in all other policy areas, putting industry back on the political agenda.
The first step came in 2012, when the Barroso Commission set out to increase the industry’s share of EU GDP to around 20% by 2020, up from little more than 15% currently.
Antonio Tajani, Italy’s former Commission Vice-President in charge of Industry and Entrepreneurship, has played a key role in promoting the agenda.
His approach included horizontal actions, such as administrative simplification, the full implementation of the late payments directive across Europe and better aligning energy and climate policies with re-industrialisation goals.
>> Read our LinksDossier: Europe’s re-industrialisation agenda: A green policy U-turn?
Tajani also pushed specific interventions in individual sectors deemed important from the point of view of employment and competitiveness, including the automotive industry, steel, space, tourism etc.
A key part of Tajani’s plan relied on innovation, in particular Key Enabling Technologies and raw materials, where Europe overwhelmingly relies on foreign suppliers. He also promoted the international dimension by launching the Missions for Growth initiative, which helped SMEs develop their activities abroad.
Combatting late payment in commercial transactions was among Tajani’s key battles, one which is now being picked up by the new Juncker Commission.
Last Tuesday (18 November), the Commission’s Directorate General for Enterprise and Industry hosted an event about the directive following its transposition deadline in 2013. The event was attended by Tajani, who is now Vice-President of the European Parliament, and aimed at raising awareness among SMEs about their new rights on late payments.
Since the new law came into force, average payment durations between businesses have shrank from 52 days in 2012 to 47 days in 2014. And average payment durations from the public sector shrank from 65 days in 2012 to 58 days in 2014.
However despite these improvements, Europe’s businesses are still at risk of failing due to unpaid invoices. The cost of late payments stood at €360 billion in 2014, an increase of 10 billion since 2012.
New Commission picks up the baton
In the Juncker Commission, Mr. Tajani has been replaced by the new Polish Commissioner Elzbieta Bienkowska, whose portfolio is much wider, encompassing the Internal Market, previously managed by French Commissioner Michel Barnier.
Her impact on industrial policy will very much depend on how the Commission President will interpret her role. Developing Europe’s industrial base and integrating it with a fully-fledged Single Market is one of Juncker’s 10 priorities. He very much insisted on the need to complete the internal market in products and services and make it the launch pad for our companies and industry to thrive in the global economy.
According to Mr. Juncker, the strategic sectors with high-value jobs where Europe should maintain its global leadership is the automotive, aeronautics, engineering, space, chemicals and pharmaceutical industries.
Perhaps the 20% target set by the previous Commission will seem a bit overambitious to Juncker. Yet, it sent out the right signal that industry will remain key for Europe as it is seeks a new era of sustainable growth.
As with broader economic issues, approaches to industrial policy remain very different among member states.
Germany’s export-driven economy continues to be the single biggest industrial nation in Europe, both in terms of share of the economic output and total industrial gross value. Austria and some Eastern European countries, namely the Czech Republic, Hungary and Slovakia, are also performing well, largely due to lower labour costs and, sometimes, favourable tax regimes.
Italy and France, for their part, rank among the large manufacturing countries that are still struggling to prevent their industrial base from eroding.