Europe’s Debt Crisis Arrives in Italy
The plan calls for freezing public sector pay, reducing funding to local government and health services, increasing the retirement age, and cracking down on tax evasion. Italians will also have to pay €25 for some non-emergency hospital visits and €10 above existing fees to see specialists. The aim is to cut the budget deficit from 3.9 percent this year to 2.2 percent in 2013 and to balance the budget by 2014.
Despite opposition from industrialists and workers alike, the austerity package won parliamentary approval on July 15. The bill won 314 votes from the 630-member chamber, not an absolute majority but enough to muster passage given absences and abstentions.
Berlusconi hopes passage of the bill will ease market tensions. But the bulk of the measures will not take effect until 2013-2014, by which point the politically unpopular package may become diluted. Moreover, general elections are due in 2013, which also casts doubt on the plan’s long-term credibility.
In any case, cutting the deficit to 2.2 percent by 2013 would result in only a very modest drop in the debt-to-GDP ratio to 115 percent by 2013. Italy will still accumulate €120 billion in additional debt between now and 2014, according to Senate Finance Committee President Mario Baldassarri.
Italy’s anemic economic growth will make it difficult to tame the debt even if the budget measures are approved and the government manages to balance the budget in 2014. The Italian economy grew only 0.1 percent in the first quarter of 2011 and the median forecast in a quarterly Reuters survey of around 20 analysts points to an annual rise of just 0.9 percent in Italian GDP in 2011.
Everyone seems to agree that Italy’s growth problems are structural and systemic. As noted recently by the Economist magazine: “Between 2000 and 2010 Italy’s average growth, measured by GDP at constant prices, was just 0.25% a year. Of all the countries in the world, only Haiti and Zimbabwe did worse.”
Says the Economist: “Many things contribute to these gloomy figures. Italy has become a place that is ill at ease in the world, scared of globalization and immigration. It has chosen a set of policies that discriminate heavily in favor of the old and against the young. Combined with an aversion to meritocracy, this is driving large numbers of talented young Italians abroad. In addition, Italy has failed to renew its institutions and suffers from debilitating conflicts of interest in the judiciary, politics, the media, and business. These are problems that concern the nation as a whole, not one province or another.”
Meanwhile, Berlusconi’s government is embroiled in a series of corruption and sex scandals involving the prime minister himself and many of his associates. In Italy’s latest political scandal, Agriculture Minister Francesco Saverio Romano, an important ally of Berlusconi, is facing charges of helping the Mafia. And on July 9, a Milan appeals court ordered Berlusconi’s holding company Fininvest SpA, which is run by his daughter Marina Berlusconi, to pay €540 million ($770 million) in damages to a rival company in connection with a two-decade-old corruption case.
With Berlusconi’s popularity at an all-time low of around 30 percent (with no obvious successor in sight), his government is weak and lacks the political capital needed to implement the sweeping changes required to restore Italy to economic and financial health.
Shaken by the prospect of financial meltdown, Berlusconi declared that Italy is “in the front lines of an economic battle” and must “accelerate the process of austerity within a very short time frame.” But his austerity package may grant Italy only a brief respite in the present crisis. In the words of Finance Minister Tremonti: “Like with the Titanic, even the first-class passengers can’t be saved.”
Italy is facing a “no-win” situation: Austerity measures and long-overdue reforms to Italy’s labor market, where workers are over-paid and notoriously under-productive, will grind to a halt already stagnant economic growth. Without those reforms, however, investors are bound to flee Italy, increasing the risk of a debt default that would have consequences far beyond the country’s borders. Either way, the glory days of Italy and its much-vaunted social welfare state are long gone and unlikely to return anytime soon.
I see no other way to shrink welfare states.
It probably follows the same kind of patterns as drug addiction. Only when your life is at stake does the gravity of the situation sink in.
Isn’t this just all about central private banking—otherwise unskilled theorists in control of the market, instead of the man on the street, where the rubber meets the road? So, why are the economists of the nations unable to divine the way out? And the banker’s guys will say—as they have said—”Oh dread! No! Why, there will be financial panics and depressions!”, . . . Well, he-e-l-l-0-0-o-o, . . . panics and depressions, . . . yeah, unemployment, foreclosures, Hello, there, . . . over here, . . .
Absolutely
I’m not used to intelligent comments about macro economy on PJM. It usually flies right above peoples heads. Actually even if you comment on economist.com or misses.org, no one seems to appreciate the housing markets strangle hold on the economy. I have often tried to float subjects like mark to market accounting rule and interest rate manipulation. And usually all I hear is crickets.
“Italy is facing a “no-win” situation: Austerity measures and long-overdue reforms to Italy’s labor market, where workers are over-paid and notoriously under-productive, will grind to a halt already stagnant economic growth.”
Italy will also fail to get out of its debt crisis because it will not fundamentaly change the way it runs its government. It still is a major social-welfare state loaded with benefits the the country simply cannot afford. Add to that is a population that has almost an abysmal birth rate and an existing population that is rapidly getting older. There simply are not enough young people to support the older people in this welfare state. The Italians, therefore, have to rely on immigration to pick up the slack, which is causing enormous social and political problems within the country.
In short, the Italians are a bunch of lazy southern Europeans who want everything and don’t really want to work for it, thinking that paying for all of their benefits is somebody else’s problem. Add to that a plummeting birth rate and older retirees who want tons of benefits, and you have a country on the verge of financial collapse. So unless they get rid of the welfare state, drastically cut benefits, reduce their high taxes, encourage economic growth by lowering taxes on corporations, and start having more kids to pay for all of the benefits they already do have, nothing will change in Italy and sooner or later they will simply go bankrupt, just like Greece.
People die on the street every day from abusing drugs. One of my sons boyhood friends did it at 37. He had lots of warnings. Dropped out of school, used drugs, stole stuff, arrested, spent time in jail, estranged from his family. Dead. Nowhere does it say that a near death experience will change behavior. I would hope that there really is wisdom in crowds and that the West can break the spending habit, get clean and survive, but when there are so many publicly funded rice bowls on the table who knows?
What your young President has done in a mere 29 months in office to rip your economy apart can provide you with a useful analogy with which to gauge what Italy has had to cope with since the second world war, being home to the biggest Communist Party in the entire Western hemishpere. Ideology-drenched trade unions started conning the system from the very beginning, managing by dint of threats and wheedling to get a piece of every pie. Every new national contract normally has provisions in it for tradesunion men who sit on boards, commissions, consultancies, you name it, and have a say in everthing that is related. They have piles upon piles of newspapers and magazines which are self-perpetuating because they are subsidized by the State. You think we Italians LIKE this ?!? Does anyone out there remember for how many years the Red Brigades and other assorted terrorist organizations were killing people in the streets? Their motto: “Strike down one, to educate a hundred”. Educate to what, you say? To fear. They started in the last months of the war, killing off all of the people who might promising future leaders but weren’t communists. In 1978 the Red Brigages even kidnapped and murdered one of our ex-Prime Ministers. Their last murder was as recent as 2002: a professor of economics of Bologna University, was gunned down because he dared collaborate with the Berlusconi government. After his assassination an email by him came up pointing to the Secetary general of the main Trade union as the person who had been setting him up as a target. The upshot? Three years later this very Tradesunion man became mayor of Bologna.
Our current government is full of defects which however have been magnified out of all proportion. But if you read something other than the one-sided partisan view of the Economist you might find some other news, such as the fact that this government has arrested of some 6500 convicts and confiscated mafia property for almost 15 billion euros in value, in the last two years alone.
To get an idea of how politicized our situation is, especially the judiciary (and judges are not elected, they are career state employees) just ponder the fact that ALL of the Red Brigades’ convicted murderers are now either totally or partially free. They have jobs, publish their memoires and are invited to hold conferences. Recently they even made a film on the life of one of them. Most Italians are hardworking orderly level-headed logical people. Don’t just us by the defects of the minority whom we are the primary victims of. And BTW Berlusconi DOES have a successor, in his party’s first-ever Secretary General, recently nominated Angelino Alfano.
ALL of the Red Brigades’ convicted murderers are now either totally or partially free.
Just like some of the Weather Underground members enjoying access to the Whitehouse, writing the name’s books and teaching children how to be upstanding revolutionaries.
In the next to last line of the comment above I wrote “Don’t just us” while I obviously meant to write “Don’t judge us”
French Banks and German Banks own a lot of Greek Sovereign bonds. The Swiss did, but got out before the first bail out package for those banks took place.
Who owns Italian Sovereign Bonds? Or Portugese Sovereign Bonds, or Spanish Sovereign Bonds, or Belgian Sovereign Bonds, or any of the other countries currently within the EU?
Those who do had better well discount the tainted assets, and wind down the toxic assets.
Italy has not exported its debt as massively as other countries. Italian bonds are held mainly by the Italian people (individuals and corporations).
We may well see the end of the Euro in all of this. And that was what would have been a major tool to resolve these fiscal problems. When you get into these issues, you devalue your currency, a tried and true method that works. However, being a part of a collective whole, each individual nation cannot do this – they must be carried by the rest of the European community.
Got dang. The welfare states in the first world countries are collapsing on themselves like a house of cards in a bad ponzi scheme.
America, are you paying ATTENTION? AT ALL???????
Most people ridicule the idea of world conspirators but the more I try to think of an explanation for all the “man-made” financial turmoil caused by “Progressive” politics, the simplest explanation is: “World Conspiracy”. Isn’t that Occam’s Razor?
What is the conspiracy? It is “Agenda21″, that evil plan of the United Nations to bring down all governments and install a global government to control (enslave) all the populations of the world! The modern-day Socialist Progressives create the crises then exploit them.
Every socialist state is nothing less than a giant Ponzi scheme and such schemes are always doomed to collapse! That’s what’s happening in the countries of the western world and is happening in the USA with Obama as the prime example of a socialist President. He lies and distorts everything to continue his plan to ‘fundamentally change” the USA (his words).
It is so basic that it is almost silly to have the discussion. Communism, socialism, progressiveism, and whatever new word they invent tomorrow, cannot work. Such systems inevitably destroy the human spirit. As if it must be proven periodically, a commie country crashes every couple of months. I am a hater if I say, “show me one successful marxist country”. I am a racist if I say “Show me one successful African Country. They run out of names to call me when I say “The only countries to approach success adhere to some form of Capitalism”.
Doubtful if Italy or any other European nation will be able to recover. We won’t either, unless we go collectively sane and return to actually following our own foundational Law. For decades we the people, like a lazy sovereign, have negligently and idiotically elected venal and corrupt ministers who have grossly violated the Constitution. From EPA to OSHA, from Dept of Labor to the SEC, swathes of unConstitutional agencies/regulations throw not sand but boulders into the gears of businesses, benefitting no one but the bureaucrats and the megacorps. Want to get out of our national financial quandary? Follow the Constitution. Eliminate the unConstitutional ‘laws’. Watch business boom, wealth spread, freedom reign.
But we won’t do that. Even ‘conservatives’ can barely be bothered to consider the obvious and easily understood meaning of our Constitution and what it actually authorizes Congress to do. This does not end well.
Doc: I’m doubtful that Italy or any other nation will really be ALLOWED to recover. Poor countries and collapsed economies are much easier to brng to heel. As your man over there Rahm Emmanuel very helpfully said: never let a crisis go to waste. What a shame it would be to let all this wonderful financial crisis go to waste without furthering the cause of world government, or “global governance”, as they now call it even over here. Jean Claude Trichet, head of the European central bank, already last year was saying that the world must be governed by the G20 countries together with the central banks, over which, however, the Western countries must not be in a dominant position because it was they who created the crisis.
Italy and Europe are in a no-win position:
1) if the debt rates grow the governments will not be able to honour the debts and the interests payments.
2) without higher interests for lending money, there is no reason to save and accumulate capital for investments
3) spend cutting is limited to the windows dressing level. What are 42 billions of cuts against 1,8 trillions of debts and 70+ billions of interests only? The government absorb half or more of the GDP.
4) the government in Italy is indebt mainly with Italians privates and Italy’s Banks. If the debt is defaulted, the government will have many angry people clamoring. Fortunately, for the government, there are many old ladies; too old to do anything.
The positives are:
1) Italians are huge savers, so if the government will default, they will survive anyway. Englishmen or people in the US could not be so self reliant as they are already indebt as their government.
2) A large part of the saving of people in Italy is in the form of homes where people live. And no sane Italians would ever use his home as a collateral for anything (apart to buy the home itself).
3) With the welfare state broken, there will be less money for do nothing immigrants and less for working immigrants. So, maybe, they will be forced to return their homeland by the economy. Turks are doing it in Germany.
Italy has become a place that is ill at ease in the world, scared of globalization and immigration.
As so should we all be. The Tranzis over at The Economist appear not to be afraid at all. Why would that be?
Reality bites, and bites hard, doesn’t it,Euroscum? Enjoy the catclysm,and,I almost forgot:VOTE SOCIALIST!