That’s Italian…

It is remarkable how chill the Italians can be – I was reminded of that yet again a few weeks ago when I was over there. Amidst continued and extraordinary political turmoil and a looming national election on September 25, life simply rolls along. The recent collapse of the Draghi government and bickering among the center and left political parties appear to have created the path for the coalition of right-wing parties led by the far-right Brothers of Italy to secure this upcoming snap election. It is feared that the €200 billion in reform commitments funded by the European Union may be reversed.

And this financial support will be desperately needed as economic conditions rapidly deteriorate. According to S&P Global’s flash composite purchasing manager index, business activity in the eurozone has reached the lowest levels in 18 months. Volatility in the Italian bond market has widened spreads against German bonds to 2.3%, the highest in months, and exacerbated by an unprecedented €39 billion short bet against Italian debt – all signaling a pending financial crisis and whispers of an “Italian Contagion.” The Milano Indice di Borsa (Italian stock market) reflects recent investor anxieties as well as the dramatic downdraft at the outset of Covid (more below).

The most recent International Monetary Fund forecast is calling for a 5% contraction to the four countries most directly impacted by the restriction of Russian gas, which includes Italy. Eni, the large Italian energy company, just announced that Gazprom has reduced natural gas deliveries by 25% to 20 million cubic meters per day. The government launched “Operation Thermostat” dictating building temperatures to limit energy consumption. This past weekend as part of a G-7 initiative, Italy agreed to price caps on Russian oil to limit Russia’s ability to fund its war efforts in Ukraine.

The size of the fiscal support, and frankly the total of the debt short positions, is all the more staggering when one considers that the Italian GDP is $2.1 trillion (at the end of 2021, in current US dollars). The Italian economy, which grew 6.5% in 2021, ranks eighth globally and third in the European Union. Current European Commission forecast is for the economy to grow 2.9% in 2022. Notwithstanding that unemployment in the Eurozone fell to an all-time low of 6.6%, just below 11 million people unemployed, the current unemployment rate in Italy stands at 9.8%. Additionally, Europe is suffering through a significant drought, with 47% of the European Union living under drought warnings, including most of Italy. And yet they continue to be happy and xenial.

Recall at the outset of the pandemic the world watched the Italians which seemed to be the first country to suffer so acutely and publicly. While case counts in the early days were relatively modest as compared to the 60.3 million people who live in Italy today, the Italians suffered through at least three very significant surges over the last nine months (below). Current daily case counts are tracking at about 22k.

Importantly, while mortality rates were staggering at the outset, like much of the world the Italian’s ability to manage Covid over the course of the pandemic was notable. Current daily deaths are running around 90, which suggests mortality rate below 0.5%. Again, the absence of masks and social distancing (not unique to the Italians) underscores how happy they are.

Thankfully, the Italian healthcare system is among the top ten in the world according to the World Health Organization, stressing equality of access for all. In 2020, Italy spent 9.7% of GDP on healthcare as compared to 19.7% in the U.S. per Centers for Medicare & Medicaid Services data. As of 2021, the life expectancy was forecasted to be 83.7 years, according to United Nations data, as compared to 79.5 years in the U.S. (although recent Centers for Disease Control and Prevention analysis pegged it at 76.1 years given the impact of Covid). Shockingly, even with all of the pasta, Italian obesity rate is 19.9% (47th least obese), precisely average for all countries; the United States weighs in at 36.2%. Sadly, 23.4% of Italians smoke which is slightly ahead of the global average of 22.0%.

Even considering all the turmoil, the Italian venture capital industry enjoyed quite a renaissance in 2021 with over €2.9 billion invested in 534 deals according to ScaleUp Italy. Twenty deals accounted for €2.05 billion of that activity, while there were 173 deals between €1 – €20 million, suggesting a deepening ecosystem is emerging. According to Crowdfund Buzz data, €171.9 million was sourced via crowdfunding platforms in 2021.

As a point of comparison, €780.5 million was invested in 306 companies in 2020 and €605.6 million was invested in 244 companies in 2019, respectively. Crunchbase lists 147 venture capital and private equity firms, accelerators, and family offices in Italy. Clearly, the groundwork for an exciting innovation economy is being created, but there is some distance to travel. Total venture capital investment as a percent of GDP was 0.14% in 2021; in the United States it was 1.4%.

Italy ranked #25 of all countries (up from #28 between 2017-2019) in terms of “happiness” according to the 2021 World Happiness Report commissioned by the United Nations. Let’s just hope that the political, economic, environmental and health dynamics do not get in the way. Don’t worry…be happy.

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