Panetta Warns Italy’s Growth Model Reliant on Low Wages is Unsustainable

Venice, Italy – February 21, 2026 – Bank of Italy Governor Fabio Panetta delivered a sobering assessment of Italy’s economic trajectory at the 32nd Annual Assiom Forex Congress in Venice, cautioning that a growth model dependent on expanding employment and suppressed wages is not sustainable. While acknowledging recent GDP progress, Panetta emphasized the need for structural reforms and increased productivity to ensure lasting economic growth. His speech underscored the urgency of investing in innovation, human capital, and completing financial integration within Europe.

Growth Driven by Low Labor Costs

Panetta highlighted that recent economic expansion in Italy has been largely fueled by a surge in employment, reaching historically high levels. This growth occurred despite slowing GDP, as companies continued to hire due to comparatively low labor costs relative to inflation. However, he warned this dynamic is reaching its limits.

Demographic Shifts and the Need for Productivity

The Governor stressed that a declining working-age population, coupled with increased labor force participation and reduced unemployment, will soon limit further gains from employment expansion. Without a “decisive increase in productivity,” he stated, economic development risks stagnating. Panetta advocated for a more innovative economy centered on knowledge and human capital, emphasizing the need to accelerate the adoption of digital technologies.

Investing in Human Capital and Innovation

Panetta asserted that Italy possesses the necessary “human, institutional, and financial resources” to invest in training, human capital, and knowledge. He believes this investment is “essential” for translating innovation, particularly in technologically intensive sectors, into widespread productivity and sustainable growth, while also addressing the economic and social implications of technological change.

Completing Financial Integration and a European Sovereign Title

A key priority, according to Panetta, is strengthening the European Union’s decision-making capacity and completing financial integration. He reiterated the call for a “European sovereign title” to finance European public goods on a significant scale and provide investors with a safe and liquid asset, thereby bolstering financial integration within the Union. He warned against the pitfalls of individual states hindering the creation of a banking union.

Navigating Geopolitical Tensions and Trade Dynamics

Panetta addressed the impact of global geopolitical tensions and trade dynamics, noting that over 200 products crucial to the European Union’s imports are dependent on foreign countries. He advocated for strengthening existing cooperation channels and pursuing bilateral and plurilateral agreements to mitigate risks and maintain trade continuity, while cautioning against the inevitability of a fragmented global economy. He also pointed out that the costs of tariffs have largely been absorbed by the US economy, with foreign exporters bearing a limited share (around 10%).

Italian Banks: A Source of Stability, But Risks Remain

Panetta acknowledged the strong profitability of Italian banks, driven by commission income and low loan adjustments. However, he cautioned against complacency, warning that economic downturns or financial market corrections could quickly erode these gains. He emphasized the importance of banks continuing to support the Italian economy through lending, while avoiding excessive caution that could stifle entrepreneurial initiatives. He concluded that the solidity of Italian banks is a crucial element of stability for Italy, and their support for investment and innovation is vital for economic growth.

The Governor’s speech, a keynote address at the Assiom Forex Congress, underscores the critical need for Italy to address structural deficiencies and embrace a sustainable growth model focused on productivity, innovation, and European integration. Assiom Forex