Italy Has the EU’s Greatest Vaccine Need
(Bloomberg Opinion) -- It’s no surprise that Italy was the first European Union nation to say it would restart AstraZeneca Covid vaccinations, just moments after the bloc’s drugs regulator gave its renewed blessing for the shots. All of the EU’s big member states need to jumpstart their painfully slow vaccine drives, but Italy’s need is greatest.
The country has suffered more deaths than any of its EU partners, and its economy is more precarious than most. Prime Minister Mario Draghi is new to the job, but without a serious improvement in inoculation numbers he’ll soon erode the political and popular goodwill that brought him to power, and which he’ll need to pull the euro zone’s third-largest economy back from the brink.
In a quirk of timing, the European Medicines Agency’s AstraZeneca decision came hours after Draghi led a day of national mourning for Italy’s Covid-19 victims from Bergamo, the hilltop town near Milan that a year ago became one of the pandemic’s deadliest killing fields. Now that vaccines are available, the prime minister can’t afford to fail a public that’s desperate to move on.
Wealthy northern Italy was the first place where the pandemic landed like a tsunami outside of China, and by some calculations it remains the world’s worst-hit region. A year later and the cost continues to mount. Italy is the smallest country to record more than 100,000 Covid deaths. This month it entered a new lockdown; schools have been shut and people sent home.
The economic imperative of vaccination is clear. Like the rest of the EU, Italy has fallen weeks behind schedule for its target of vaccinating 70% of the adult population by the summer. Compared with the U.K., where 38.5% of people have received at least one shot, Italy’s figure is 8.4%, according to the Bloomberg vaccine tracker. In Italy, each week of delay equals 2 billion euros ($2.4 billion) of lost output, estimates Allianz senior economist Patrick Krizan.
Crucially, Italy was in a bad state financially before the pandemic struck. It was the only G7 country not to have seen its economic growth return to pre-2007 levels, and its per capita income is the same as in 1998.
Moreover, the backbone of the economy is small and midsize businesses that are especially vulnerable to the business disruptions inflicted by the pandemic. This is different from France where the economy is made up of large, multinational firms and even from Germany where the Mittelstand industrial belt shares some similarities with Italy’s industrial north.
Smaller firms in Germany and Italy rely heavily on bank debt, but in Italy the situation is more extreme. The OECD has calculated that 40% of Italian company assets are financed by short-term loans, far higher than their European peers. This constrains investment and makes Italy’s employers more vulnerable to macroeconomic shocks.
Cerved, a Rome-based tracker of Italian insolvencies, estimates that small and midsize firms have lost as much as 65 billion euros of capital value during the pandemic. Companies in hard-hit sectors, such as logistics and transportation, could have lost as much as 15% of their capital value over the past year.
Draghi, a former European Central Bank president and Italian central banker who became prime minister a month ago in a coup de theatre intervention by Italy’s President Sergio Mattarella, understands the urgent need for vaccinations to let Italy return to business. He has appointed a vaccine commissioner and a scientific technical committee to advise him.
This month, Italy was the first EU country to use the bloc’s new regulations allowing vaccine exports to be seized if the manufacturer had failed to meet its EU obligations. Italian police blocked the export to Australia of 250,000 AstraZeneca doses produced in Italy. In Bergamo on Thursday, he promised new supplies would make up for the delays.
His decision to suspend use of the AstraZeneca vaccine ahead of the EMA’s decision on blood-clotting risks won’t have been easy, but it appeared to be more about maintaining relations with Germany’s Angela Merkel, an ally when he was at the ECB, and France’s Emmanuel Macron, someone he’ll need as the Merkel era draws to an end. The EU’s 750 billion-euro pandemic recovery fund was secured with German and French backing against “frugal” opposition from the Dutch and the Austrians, and Draghi knows how essential such support is for Italy.
This is Italy’s second economic crisis in a decade and the social damage is incalculable. Lines of people outside pawnshops were a feature in Italy during the European debt crisis eight years ago and they’ve returned even in wealthy cities such as Milan and Turin. A report from national statistics office Istat published in 2020 showed the generation born between the end of the 1980s and mid-1990s is the first to experience decreasing social mobility. “It is the American dream in reverse,” says Silvia Merler, a European political economist.
That Draghi, an unelected technocrat, managed to come to power in a grand coalition due to an entente among Italy’s warring political factions — including populist, nativist, far-right and anti-big business parties — is something of “a miracle,” as Enrico Letta of the center-left Democratic Party says. But his political honeymoon will be inevitably short-lived, as the history of Italian government shows.
A rapid rollout of the vaccine from here on is vital to keeping his pact with Italians. It will also give him room to work out how best to distribute the 200 billion euros of EU recovery funds earmarked for Italy, which are the country’s best chance in decades of reversing its economic decline.
Neither Draghi nor the EU establishment wants a repeat of summer 2019, when League leader Matteo Salvini took to Italy’s beaches whipping up enough popular support to raise the specter of a far-right government at the heart of Europe.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Rachel Sanderson was Milan correspondent for the Financial Times from 2010 to 2020. She has also written about Italy for the Economist and reported for Reuters and Reuters TV from Rome, Paris and London.
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