At ground zero of eurozone crisis, Italy’s Pesaro sees recovery
Economic fortunes of small industrial towns could be pivotal to EU’s fate in the coming years
For Simona Ricci, a 49-year-old trade union official in Pesaro, a city of 95,000 along Italy’s Adriatic coast, the financial crisis hit like a natural disaster, or a nuclear attack.
“Almost everything was wiped out, and this was a land of relative wellbeing,” says Ms Ricci, speaking in the offices of the CGIL union on Via Gagarin — a street named after the Soviet cosmonaut — in Pesaro’s industrial district.
“There was a Darwinian selection of the manufacturing system and anything associated with it — including services. The dramatic effects of this are still being felt.”
The province of Pesaro-Urbino, in Marche region, is emblematic of the Italian economy. Home to many small and medium-sized, often family-run, manufacturing companies, it suffered a huge reversal in fortunes in recent years.
In 2007 unemployment was 3.2 per cent — about as good as it gets in advanced economies. By 2016, joblessness had risen to 12.5 per cent — even higher than the national average — after the crisis exposed the weak competitiveness and low productivity of many local firms, driving them out of business.
There was no major public sector presence, or tourist industry, to soften the blow — and to make matters worse, the region’s top bank, Banca Marche, collapsed under the weight of its bad loans.
But even here, at one of the ground zeros of the eurozone economy, there are signs of improvement. The companies that survived — due to sheer size, exposure to faster-growing export markets or investments in automation — are seeing growth in revenues and employment.
“If you drive through the industrial district in the rush hour, you start to get some congestion, more trucks in the roundabouts,” says Giorgio Calcagnini, a professor of economics at the University of Urbino.
Business leaders and public officials are finally breathing a sigh of relief.
“We are still in a phase of suffering but we have started moving again,” says Matteo Ricci, the centre-left mayor. “I feared that social cohesion could have been damaged, but it held up. And now we’re looking to the future with greater hope.”
The economic fortunes of places like Pesaro — the hometown of 19th century opera composer Gioachino Rossini — may be pivotal to the EU’s fate in the coming years. In its latest economic forecast, Brussels projected that its 28 member states would grow by an average of 2.2 per cent this year — their fastest pace in a decade.
Even in Italy, a perennial eurozone laggard, the GDP outlook was upgraded this year to 1.5 per cent, from 0.9 per cent in 2016. The improvement has eased some fears that the country is the biggest source of economic and financial risk in the eurozone. Standard & Poor’s raised its rating for Italian debt to BBB from BBB-, the first rating increase in three decades.
But there are still plenty of doubts about the sustainability and breadth of the Italian recovery, given the country’s persistently high public debt, the vulnerability of its banking system, its stagnant productivity and other structural weaknesses.
Moreover, until both the reality — and perception — of better times feeds through to the streets of small manufacturing hubs such as Pesaro, there is unlikely to be any drop in political support for populist Eurosceptic parties — such as the Five Star Movement and the Northern League — that feed off economic anger.
On a national level, Italy is certainly experiencing an industrial revival — or at least a rebound. The IHS Markit Italian Manufacturing index, a survey of sentiment among factory owners in the country, jumped to 58.3 in November of 2017 from 57.8 in September, posting its strongest reading since 2011 on the back of strong measures of output, new orders and employment.
Meanwhile, industrial production as measured by Istat, Italy’s main economic statistical agency, rose 2.9 per cent in the first 10 months of the year, compared with the same period in 2016.
But the Marche region, as a whole, is still struggling. According to a study by the local section of Confindustria, the local business lobby group, industrial production was up just 0.7 per cent on average.
“We lost a lot of productive capacity and we are still far from the levels we had in 2007 and 2008,” says Salvatore Giordano, the director-general of Confindustria Marche Nord, which includes the province of Pesaro.
Mr Giordano confirms that those companies that did emerge alive from the crisis are beginning to crank things up — some in a big way. One of them is Valmex, a family-owned maker of aluminium and copper heat exchangers, used in boilers around the world. It has seen sales rise this year, and hired at least 70 more people this year, bringing the total to about 350.
“I would actually say the crisis helped us. It obliged us to keep our nerve, to invest and stay in the market,” says Severino Capodagli, the company owner.
One of the beneficiaries of Valmex’s growth is Mattia Zenobi, a mechanical engineer, who was hired by the company this year just before he graduated from university. For about €1,300 a month, he performs quality checks along the assembly line. “It’s my first real job. It’s stimulating, and gratifying too,” Mr Zenobi, 25, says. “They saw a light in me.”
In the next two years, he hopes to leave home and move into a small place of his own. But more importantly, Mr Zenobi believes his case is no longer that unusual. “My friends are more or less either under contract or doing an apprenticeship,” he says. “Companies are starting to hire again.”
Groups such as Valmex have benefited from tax incentives promoted by the centre-left governments of both Matteo Renzi and Paolo Gentiloni to amortise the purchase of new machinery — a programme called Industry 4.0 that is intended to spur investment in automation and give a jolt to competitiveness and productivity.
“No matter what you think of this government, it is the only one that gave real incentives for companies to invest,” says Mr Capodagli. “Now if you go order a piece of machinery you have to wait a year, a year-and-a-half, two years. Before the equipment maker would throw it at you because it was ready. They are all full, they can’t take orders. It means something is happening.”
But the worry is that there are simply not enough companies that are big enough or strong enough to be able to take advantage of either the tax breaks or the improving environment.
“The incentives seem to be working but there’s a size problem,” says Ms Ricci. “The group of medium-sized companies that emerged from the crisis better than others is so small around here that I don’t think this will have an impact on the quality and quantity of employment for a long time.”
Mr Giordano put it more bluntly: “We only have a few cavalli di razza, [pure-bred horses]”.
For now, caution still seems to be the prevailing attitude. At Scavolini, the kitchen maker that is one of Pesaro’s flagship companies and made it through the crisis thanks to investments in automation and an aggressive marketing campaign, sales are up this year.
But Fabiana Scavolini, the chief executive, is still hesitant. “It’s slow. Let’s say slow. There’s a lot of talk about a big recovery, and there are a few signs, but I’d rather say things are stable.”
At Fiam, a maker of glass furniture, founder Vittorio Livi says “people are more serene and starting to have more confidence that the business is changing”, compared with when they were just “crying, crying, crying”. But he is not quite ready to start adding employees. “Non dire gatto se non ce l’hai nel sacco,” he says, a proverb that amounts to “don’t count your chickens until they hatch”.
But a floor below Ms Ricci’s office at CGIL, Michela Tozzi, 22, has a glimmer in her eyes. The job situation is still “tragic” for many of her friends, but for her, the recovery has arrived. She has come to tell them she has found work as a part-time saleswoman in a clothing shop — a sign that for her at least, things are improving. “I’m more than happy,” she says.