How Italy is Paying a High Price for Anti-Russian Policies

Just a few days ago the European Union has confirmed that the economic sanctions against the Russian Federation were extended for another year, or specifically up to 19th January 2016. Despite attempts to minimize the perceived impact of this policy on the economy of the EU in the eyes of the public opinion, the price being paid to pursue this power politics agenda is none else but a hefty one. In this article I will focus on the actual catastrophic consequences of the sanctions on Italy, the reason of this choice resides in the status of this country as one of the former leading economic partner of Russia in Europe, second only to Germany.

Since the enforcing of the sanctions in the first quarter of 2014 the trade of goods between Russia and Italy has dropped just shy of one third reaching the value 32%. Let's broke down this data. The starting round of sanctions did not call for extremely aggressive measures, yet those were serious enough to cause a net loss in the Italian-Russian exchange of €5.3 billion or -17% from the same quarter of the previous year. Even so, economic relations between the two countries were still strong enough that a recovery in the long term was possible, considering that the overall exchanges reached €31 billion, or more specifically €11 billion for Italian exports and €20 billion for Russian exports.

In this scenario Italy, and not Russia, received the bitter end of the bargain. Conservative estimates put the net loss in Italian sales at €1.25 billion or -11.5%, affecting in particular the agricultural and the manufacturing sectors, at least at that early stage. On the other end, no significant changes were encountered in the energy sector, and Italy has been importing natural gas and oil from the territories of the Federation, despite the unsubstantiated fear that Russia could have retaliated by cutting supplies and leaving Europe chilling during winter.

Being a matter of mere historical record now, it is well known that the EU proceeded even further in its ill-advised endeavors and rushed the escalation of the sanctions to stage 3 in just a few months, bringing more self-inflicted damage to its own economy. This leads us to the aforementioned figure of 32% in trade as the overall loss spread on both exports and imports in Q1 of 2015, since the same period of the previous year, and of course these are the figures for Italy-Russia relation alone. This translates into a net loss for Italy of €3 billion, and it is worthy of remark that all those figures are very prudent estimates, as the concerned parties in Italy - producers, exporters, and so forth - denounce way more serious losses.

To put these events into another perspective, in 2013 the Italian agriculture received €562 million in exports to Russia. Then with the introduction of the sanctions in 2014 the sector suffered an immediate hit of -6% or the equivalent of a €34 million loss, to eventually plunge dramatically for a -46% or €303 million. The exports of meat and dairy products were basically obliterated, with the former losing 83% of its market share and latter a staggering 97%.

The Italian textile industry isn't enjoying greener pastures, considering that exports in this sector decreased by 16.5%. Some specialized districts, such as that of Ponsacco and Perignano, suffered a steeper decline that peaked at 80%, resulting in a generalized bankruptcy for the companies in the area. Losses of similar magnitude are encountered in the electronics, mechanics, and car sectors that shrunk by about 14%.

Another point is very worth noting and it requires shifting our attention on the job market. So far, the sanctions have wiped out 80 thousand jobs in Italy and forecasts for 2015 are still grim, estimating that 215 thousand additional jobs will be destroyed. In a country where unemployment is at 12.4% which translates to an impressive 3 million 300 thousand unemployed people, this isn't definitely the way to give a positive impulse to the economy, considering also that unemployment for people aged under 25 peaks at an even more astonishing 43.1%.

The real issue, though, is subtler and even more worrisome for Italy and the EU economy in general. Indeed, while European exporters can't find new markets to overcome the shortage of demand induced by the sanctions, the Russian market is already replacing the old trade partners with new ones from areas outside Europe, which don't have to submit to the inflexibility of Brussels. Notwithstanding the fact that the existing short-term damage is already significant and sanctions will, the long-term consequences of this situation are potentially far more troubling and they will stretch for a longer period.

The intrinsic risk is that all those circumstances overall considered could push Italy into a loop that will frustrate most of the efforts throughout the last two decades and a half to develop a solid partnership, both political and economical, with the Russian Federation. While 6 million Italians, 10% of the population and rising, struggle below the threshold of poverty, the national government is unable to come up with credible solutions due to the constraints imposed by the EU. On top of that, it keeps following the lead of the European community in a dubious geopolitical venture whose most notable accomplishment so far is that of thwarting further any chance of recovery for the Italian economy, both in the short and the long run.