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Italy’s austerity-fueled crisis is a warning to the Eurozone

• lenticular 8y ago
  This is a great article. The EU has done tremendous damage through its obsession with austerity.
  • bjelkeman-again 8y ago
    Italy’s inability to sort out their bureaucracy really doesn’t help. (Ever tried to sell/buy a house in Italy, compared to, say Sweden? It is absurd.) Not that it is their only problem. But when rational people vote for Berlouisconi as prime minister, then you know you have a problem at multiple levels, imho.
    • _cerv 8y ago
      This. The problem wasn’t too much austerity, it was that the pendulum seemed to always swing to extremes. Banking policy was always painted as a binary choice of excessive welfare financing or heartless spending cuts.
  • alanpetrel 8y ago
    Were austerity instructions handed down by the EU or did the individual member states decide to implement it themselves?
    • evancox100 8y ago
      Handed down but up to countries to follow them. As the article states, Italy appears to have followed them to the letter, more so than Germany or France, but hasn't ended up in a great place.
    • presidente20 8y ago
      Handed down. The austerity has been a condition of the bailouts from the ECB & IMF. The Greeks even voted against the terms in a referendum which was immediately overturned. In Italy the EU even went to the lengths of appointing their own man to oversee the terms: https://en.wikipedia.org/wiki/Mario_Monti#Prime_Minister_of_Italy https://en.wikipedia.org/wiki/Mario_Monti#Prime_Minister_of_...
• geargrinder 8y ago
  It took less than two decades for Venezuela.
  • laumars 8y ago
    David Cameron managed it with one referendum
• glbrew 8y ago
  hug of death?
  • iscrewyou 8y ago
    http://web.archive.org/web/20190412213052/https://www.ineteconomics.org/perspectives/blog/how-to-ruin-a-country-in-three-decades http://web.archive.org/web/20190412213052/https://www.inetec...
  • dtjohnnyb 8y ago
    I think so: https://web.archive.org/web/20190412213052/https://www.ineteconomics.org/perspectives/blog/how-to-ruin-a-country-in-three-decades https://web.archive.org/web/20190412213052/https://www.inete...
• bjelkeman-again 8y ago
  I thought it was going to be about Britain. They have been drivning towards the abyss in the last decades. I used to live in London. The difference in public infrastructure and company facilities between the UK and Northern Europe is quite staggering. Now, add the “Ever shrinking Britain” (Scotland leaving after Brexit…, Northern Ireland more part of EU/Ireland than Britain in the future?) to the events and it makes the British Brexiteers really looking like want to cut off their nose to spite the face, except the face is the EU’s and the nose belongs to Britain.
  • alecco 8y ago
    Sure but they are close to a balanced budget. And have the best employment rates in a long time. Unlike France, a closer example.
    • pjc50 8y ago
      Yes, but at what cost? The food bank use rate is at an all time high. A lot of people are skeptical of the raw employment rate - an uber driver who does 1 hour a week counts as "employed".
      • tonyedgecombe 8y ago
        >an uber driver who does 1 hour a week counts as "employed" The underemployment rate has been falling steadily alongside unemployment.
    • GordonS 8y ago
      This started long before the Conservatives came into power and actually made an attempt to right the budgetary wrongs of the previous Labour government.
  • lainga 8y ago
    Yes, but the gap has been around since the 50s and was mostly born from Britain squandering their Marshall Plan aid playing at empire (instead of reconstruction) between 1948 and the Suez Crisis.
• johnzim 8y ago
  The Eurozone was never intended to do the damage it has done to PIGS economies but it has. What is worse, is that it has unquestionably been of benefit to Germany, which has one of the strongest hands in shaping the future of the EU. If a macroeconomist had sat down to devise a currency that suffocated Italy, Portugal, Greece and Spain - export driven economies (remember that tourism is an export as you have to buy the local currency to obtain the 'goods'), and benefited Germany (an economy with an export sector that would normally be severely impacted by a strong services sector's drive to increase the value of the currency) - they couldn't have done much better than the current Eurozone setup. Arguably we need more currencies in the world, not fewer. Economic homogeneity across an entire nation state can only reasonably expected with small countries (and remember that the Italian Republic is a very new country cobbled together out of provinces, often with significantly different economies.) Left to float independently, the Deutschmark would not be as low as the Euro is today and the Lira would never be as high.
  • pjc50 8y ago
    The logical conclusion of most of these arguments seems to be that the US should have floating currencies between the states, to stop unfairly benefiting the few net productive export states?
    • evancox100 8y ago
      No, IANA Economist, but I'd wager that states in the US are much more homogeneous than are countries in the EU, both in terms of laws + regulations and in labor productivity. Plus, there is a (more or less) democratically elected government that is (nominally) responsive to all of its citizens. Much more so than the various EU branches are, at least.
    • mjevans 8y ago
      I'd argue that taxing the rich more and funding non-broken-window public infrastructure is a better policy for growth. Including investment in education, transport of all kinds, 'going green' (maybe even large new-generation clean-nukes), and also dangling carrots in front of RnD / upgrades likely to produce positive economic impacts. Not mentioned, since the focus on European governments probably means universal healthcare, is universal healthcare as public infrastructure. That too would be a useful structural improvement and serve to reduce economic friction while improving worker productivity.
• debatem1 8y ago
  I wish we had a political version of Mr. Rogers. We need better role models for how to talk about politics in ways that are measured, reasonable, and respectful.
  • mhh__ 8y ago
    The difficulty is that the two "basic" schools of politics/economics, Capitalism and Socialism are so diametrically opposed in terms of assumptions and methods that objectivity itself becomes subjective. Socalists tend to look at the world differently to capitalists.
    • gridlockd 8y ago
      These are not "the basic schools" of economics. If I had to pick two camps, I would pick Keynesianism and Neoclassical economics. Politically, Keynesianism has won over both sides of the spectrum. There is no "diametric opposition", virtually all socialists of today agree that markets are to be favored over central planning. That part is settled by history. What socialists and non-socialists disagree over is generally the degree of state intervention in the markets and who should pay for what, that is who pays taxes and who gets the benefits.
      • mhh__ 8y ago
        I deliberately wrote basic and political/economics, in the sense that political debate regarding economics is divided into those basic catagories at least in Britain. Economic policy, the yes practically the decision is between some form of Keynesianism or something vaguely monetarist (Laissez-Faire) How can a socialist (https://en.oxforddictionaries.com/definition/socialism https://en.oxforddictionaries.com/definition/socialism) system have a market? The point I was making is that in my experience, many socialists (as defined above, type of socialists) do not believe or understand how behaviour emerges from markets and how this is efficient where competition is possible: It's all government this, government that. May I ask where you are writing from?
        • 8y ago
• napolux 8y ago
  Italian here. AMA :-)
  • youeseh 8y ago
    Dear token Italian: I thought your new government was Italy-first. What happened? Austerity continues?
    • lou1306 8y ago
      We're now in the age of careless public expenditure (a weird form of UBI that actually is an unemployment benefit, early retirements, and so on) and tax cuts that only benefit the upper class. Or so I've heard, since the government has yet to find the money to do any of these things. Meanwhile, the weak economic growth we were having until last year is gone.
    • token_italian 8y ago
      Italian here: - unfortunately most of the people in Italy (with the highest amount of votes) are low-wage populists, so politics are going in that direction (see five star movement) - there is a permeating sense of social envy against "the rich", the problem is what is considered "rich" in Italy are people that earn more than 1500 euros a month,net...almost all new laws are being created to take wealth from "the rich" (which really means the ones that are "not poor") and redistribute it to populists that don't work or produce minimal wealth -add to that the extreme ignorance of politicians and population alike (we have a flat tax that isn't flat, a universal basic income that is neither basic nor universal, but most people don't even know what the names mean)...a recipe for disaster As a result, productive people live in a constant state of psychological stress because you never know how the government is going to screw you next year (forced withdrawal from your bank account? raising capital gains taxes? raising taxes on income?) and are constantly bombarded by newspapers with headlines like "we're going to tax 'the rich' in order to give "universal basic income" to the unemployed) As someone who comes from a normal low-middle class family and has been clawing his way up the social ladder for the past 10 years, the situation is almost unbearable as you constantly feel the entire country is against you and is fathoming new ways to rob you of your hard earned money, almost all the productive youngsters I know are considering moving elsewhere because you can't really live in a constant state of frustration and anger
• kartan 8y ago
  While one hand was trying to balance the budget cutting in investment (education that makes people happier and more productive, healthcare that keeps people healthy, ...) the other hand has been increasing the expenses and decreasing revenue (giving bailouts to bankers, allowing tax havens). How was austerity supposed to balance the economy when money was given away to the rich and taxes reduced? For each euro that was removed from schools, more than that was given to banks. Each time public health benefits were reduced there was a new company moving to Ireland, Malta, etc. So, now we have the same or more unbalanced budgets but citizens are poorer, less educated and do not see a future for themselves. > Continued stagnation will feed the resentment and anti-establishment, anti-euro forces in Italy. The Eurozone countries need to increase revenues and start investing that money into education to prepare its citizens for the new economy. The alternative is disenfranchised citizens stuck in poverty that will fall in the hands of populism. You have to spend money to make money. Austerity misses the point.
  • Mirioron 8y ago
    What's the point of investing the money into education if the people study in poor countries and then move to the rich countries? Brain drain is a real problem and there has been no solution for it. I'm being facetious about the education part, but you can't deny that those countries are paying for the education of many people who end up going to western Europe.
    • kartan 8y ago
      > What's the point of investing the money into education if the people study in poor countries and then move to the rich countries? The point is to make people happy. That people that emigrates has an opportunity that would have never had. Some of them will come back bringing other countries knowledge. That doesn't mean that you are wrong. "Brain draining" is a real problem. I like the logic of "What if we train our employees and they leave? What if we don't and they stay?"
      • presidente20 8y ago
        Fair point but I think the problem is that the brain drain is exacerbating the other structural problems in the eurozone.
• logicx24 8y ago
  So the largest problem here is the lack of competitiveness of Italian exports on the global market. That's creating a vicious cycle, where poorly performing exports depress wages and internal demand, leading the country to depend further on capricious foreign markets. This trend will continue, as lower-wage countries continue to intrude on traditional Italian products. The solution should be to improve the competitiveness of Italian exports on the global market, which will serve as the foundation for economic growth. The article states this fairly plainly, and I agree. However, I don't think a government-led technological push, which the article advocates, is the solution to this. Instead, the government should increase its spending on public infrastructure, while continuing to make structural reforms that allow businesses to organically diversify into more profitable areas. For all this article's talk about Italian labor deregulation, it's still very expensive to both grow and reduce labor in Italy. This is worsened by high corporate and individual taxes, which both depress demand and discourage business expansion. A middle class tax-cut, which worked well in Germany's "economic miracle," would help alleviate this. And finally, Italy has major regional differences in wealth and productivity. The south of Italy is much poorer and much less productive, the result of years of subsidies that have prevented industry from sustaining private growth. Infrastructure improvements there, along with a reduction of crime, and the ever-present bogeyman of political corruption, would help tremendously, along with an overhaul of the redistributive system to encourage productivity and economic growth.
• pif 8y ago
  I am Italian. And I am happy to find out it was indeed the fault of EU. Wow, what a relief! I thought we Italian were the problem! I mean, we voted Democrazia Cristiana for decades, just because it had Cristiana in the name, and which party will do any effort to be re-elected when they know in advance they will be re-elected anyway? I mean, I always heard bad things about corruption, but the corrupted politicians were elected by us, and corrupted by us as well! I heard about "voto di scambio" (litteraly: exchange vote) many many times, but I never got it completely: you are granted anonimity in the voting booth, and you vote for a mafioso because you made a promise to him... You have the possibility to counter mafia's power and you vote for him! Are you an idiot or what? And heroic judges payed with their life the effort to grant us a better country, and in the end they got to subvert that corrupted mess that the First Repubblica was, and we did end up voting for Berlusconi?!? A disgusting divorced guy, mingling with young prostitutes, and calling himself "Anointed of the Lord"? It's true that the rest of the political class didn't make any effort to attract votes from non extremists. The few times Berlusconi was not governing, the only top priority was about homosexual rights. Nothing personally against it, but in such a catholic nation like Italy you cannot expect it to pass smoothly, and don't you think the whole nation would need some thought about economy and legality? I don't like the two current top clowns, but I understand they are the "least worse". And you want to blame Euro?
  • bromuro 8y ago
    Yes the Euro is to blame. I’ve lived enough in Italy to see how generally Italians have absolutely no idea what’s going on in the global economy and why now the country is in regression now. They are like “distracted” by a telenovela-like politics (you cite Berlusconi) that doesn’t explain anything about the state of the italian economy and why it goes this way down. And when they try, the political discussion is eaten by a calcio-style debate, at the paradox where socially worth maneuvers are now a fascist thing, while no left parties are there to embrace the economical revolution your country requires. Politics has no role here, whatever the RAI is screaming in the news, whatever the party is at the government, Italians just accept whatever Europe or industrial lobbies want, and now here are the results. Yet still they continue to debate about useless political dramas.
• Proven 8y ago
  > Locked into a position of structural weakness Bollocks. Th y aren't locked, they choose to be locked. GTFO of the EU and take care of yourselves.
• chewz 8y ago
  It isn't fair to blame euro for Italy's troubles. You should rather look at poor governance: * high public debt and as a consequence high percentage [over 3%] of GDP going for public debt servicing. [Just stop and think about it - Italy is spending on debt servicing the same percentage of GDP that US is spending on military] * failure at attracting foreign greenfield investments * one of lowest percentage of youths with university degree [below 30% - 44% OECD average] * poor education system [2015 OECD PISA lower then US which means very bottom] * low productivity at Italy's many small enterprises. Italy failed at adapting it's economy to globalization age. And the blame should go to Italy's political class not EU. [1] - https://www.ft.com/content/b3c85b34-e10a-11e8-a6e5-792428919cee https://www.ft.com/content/b3c85b34-e10a-11e8-a6e5-792428919...
  • ironic_ali 8y ago
    I replied to another poster and although your points are valid, each members debt load had a greater effect. Please see https://www.armstrongeconomics.com/international-news/europes-current-economy/the-euro-crisis-the-previous-debt/ https://www.armstrongeconomics.com/international-news/europe...
    • chewz 8y ago
      We are not at odds. My point is since 1992 we have era of rapid globalization and many economies adapted (usually at the expense of ordinary folk ie. economy is doing great and people not so much). Debt, currency etc. is just technicality. The rules have changed, the world is playing brutal Texas Holdem now and Italy is still trying to play chess.
  • paganel 8y ago
    > low productivity at Italy's many small enterprises. Just as an example the Italian white-goods industry used to be world class but it got almost obliterated first by Turkish competition and then by the Chinese and the Koreans (which probably also manufacture most of their stuff in China). I’ll also whant to add a mention about Italy’s car industry (which was not small, I agree). The Germans somehow managed to keep their brands and most of their car manufacture going while the car industry in Italy is about to dissapear completely. I’m not exactly sure of the reasons of why that happened (as late as the 1990s the Fiat Punto was still the best sold model in Europe) but this has also had a very adverse effect on Italy’s lack of growth. Afaik the German car industry is responsible for almost 10% of its GDP, Italy wouldn’t have been in a as dire a situation as the current one if it still had a well-established car industry on its own.
• perfunctory 8y ago
  After I watched The Great Beauty (La grande bellezza) my perception of Italy as a relatively poor country was completely transformed.
• throwawaymanbot 8y ago
  Lots of Anti-EU Russo bots in this comment thread. Not reading.