Italy's strong economic revival has ledsome observers to talk of miracles and created euphoria in some
quarters about future growth prospects, but many Italian
experts warn that the current wave of optimism is excessive.
    "I think all this foreign interest in the so-called Italian
miracle is really exaggerated...Foreign observers always
oscillate in the case of Italy between complete pessimism and
unwarranted optimism," says Luigi Spaventa, one of Italy's
leading economists and a professor at Rome University.
    According to Spaventa, these violent swings of mood have
been occurring for the last 15 years, with Italy one minute
seen as the "bad boy of Europe" and unable to raise a dollar and
the next a worker of miracles and basking in admiration,
    "I think there's a lot of exaggeration...Once it used to be
the underground economy and all the correspondents of foreign
newspapers flocked to Italy to study this. That was another
story about nothing - like writing about a black cat in a dark
room."
    Spaventa, in tune with other economists and industrialists
here, stress Italy's recent achievements, particularly the
dramatic and solid recovery in the fortunes of industrial
enterprises, but warns that the economy is still vulnerable.
     Profits of private sector firms such as Fiat S.P.A.,
&lt;FIAT.M> and &lt;ING. C. Olivetti and C. S.P.A.> are booming, the
major state industries are back in the black after years of
losses, inflation has nosedived and the trade and balance of
payments deficits have been slashed. Expectations by some
experts that Italy is poised to replace Britain as the world's
fifth largest economy have also boosted optimism.
    Italy itself has made it clear it is not happy with what it
feels to be its second-rate status among the major
industrialised countries.
    Only this week, it angrily demanded clarification of this
status after being excluded from a meeting of finance ministers
from the Group of Five (G-5) - comprising the United States,
Japan, West Germany, France and Britain.
    Italy said its exclusion from the meeting violated an
agreement reached in Tokyo last year to let Italy and Canada
attend meetings held by the five whenever discussions concerned
managing the international monetary system.
    But Italy needs first to tackle some fundamental problems
still facing its economy, economists and industrialists say.
    "We must not forget that ours is still a vulnerable economy,"
warns Fiat managing director Cesare Romiti.
    He says that while Italy's recent achievements are indeed
cause for satisfaction and optimism, the focus now should be on
the problems still remaining rather than those already solved.
    The country's huge state sector deficit, high unemployment
and a heavy dependence on imported oil are among the most
worrying problems, experts say.
    The size of the state spending deficit -- estimated at
109,561 billion lire in 1986 and targetted at 100,000 billion
lire this year -- means there is a risk inflation could spiral
again, says Carlo Scognamiglio, head of the private Luiss
university in Rome.
    Inflation fell into single digits for the first time in a
decade in September 1984 and by January this year was running
at 4.5 pct, but it is still not low enough to guarantee
international competiveness, economists and industrialists say.
    And unemployment was running at 11.6 pct nationally last
October according to the latest official data.
    Recent official data showed that of a total 2.77 million
people seeking work in October 1986, almost 73 pct were aged
between 14 and 29. Unemployment in the south was running at
17.7 pct, more than double that in the industrial north.
    The Organisation for Economic Cooperation and Development
(OECD) recently forecast that Italian gross domestic product
(GDP) would rise rise three pct in 1987 after expanding 2.5 pct
in 1986. But it warned that growth was unlikely to be enough to
check rising unemployment.
    Another problem is Italy's reliance on imported raw
materials. The country imports around 80 pct of its fuel needs.
    This factor actually worked sharply in Italy's favour last
year, when lower energy costs helped slash the country's trade
deficit to 3,717 billion lire  by year end from 23,085 billion
lire in 1985.
    But economists say the improvement owes little to any
structural change in the Italian economy and that any reversal
of the trend in costs could have serious consequences.
    If Italy truly wants to be counted among the world's top
industrialised nations, it also needs to tighten up stockmarket
operating procedures and encourage firms to supply more quality
information about their activities, economists say.
    Italy has no controls on insider trading.
    The country also needs to shed its rigid capital movements
controls -- a European Community directive calls for these to
be dismantled by 1992 -- but this too will require a less
blinkered attitude and a change in traditional operating
procedures, economists say.
    "Even today, if I wanted to invest in the Tokyo bourse, I
doubt I'd find the expertise in a brokerage firm or in banks
which would allow me to do that," says Spaventa.
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