If France is the sick man of Europe then Italy is the dying man of Europe. Everything that is wrong with France is 10 times worse in Italy.
The Italians sleep-walked into the euro at a suicidal exchange rate (1 euro: 2,000 lire) that doubled the price overnight of the things that matter in life such as wine, coffee and cigarettes. So the caffé doppio macchiato with which I confront each day that used to cost 2,000 lire then suddenly cost 2 euro (4,000 lire). And so on. Wages, needless to say, did not go up.
The banks did though switch on the credit taps and hose the Italians with huge personal and business loans plus mortgages which helped to sugar the pill until the whole shooting match came crashing down in 2007/8.
There had been hardly any debate in the Italian media about whether Italy should hand over its monetary sovereignty to Brussels and thus let’s face it to Berlin. It just did. The Italians agreed to the euro, I am forced to conclude, only because nothing, they reasoned, could be worse than any Italian government.
How wrong they were. As the Anglo-Saxons (as we are known) endlessly warned everyone: currency union cannot work without political union and there is no political union in Europe, nor will there ever be.
One reason for this is that not even the Italians would agree to it. And yet, despite this the Italians signed up to the single currency regardless. It beggars belief. Only now are they having serious second thoughts.
Italy’s sovereign debt for which it alone is liable – and not the other members of the Eurozone as would be the case in a normal currency union – rose from 103.3% of GDP in 2007 to 132.6% in 2013 making it the third highest in the world after Greece and Japan. During 2014 – according to estimates by the Organization for Economic Co-operation and Development – it rose by a further five percentage points.
So the debt has increased by roughly 20% since November 2011 when Silvio Berlusconi, the last Prime Minister to be elected by the Italian people, was forced to resign. Since then, Italy has had three Prime Ministers – none of whom has been elected. Berlusconi was blamed relentlessly for the debt and much else besides yet his removal has made no difference. In fact, since his demise, things have gone from bad to worse. Austerity has not meant dramatic cuts to public expenditure at all as it should have done but dramatic wage cuts, tax hikes and unemployment in the private sector.
Of course, the issue of who – in the last resort and in practice – is responsible for the sovereign debts of Eurozone nations is now being tested to the limit in the stand-off between the new Greek government and Brussels and Berlin. I cannot see the issue being resolved amicably: it will be either Grexit or Gerxit. Italy, meanwhile, fudges the issue.
The current un-elected Italian Prime Minister Matteo Renzi, leader of the ex Communist Partito Democratico, has been in power for exactly one year. This ex boy scout and football referee, who turned 40 in January, and goes to mass on Sunday, is nicknamed “il rottamatore” (demolition man). He was not even an MP but the Mayor of Florence when he became Prime Minister. They billed him as Italy’s Tony Blair – the man who would drag Italy’s Neanderthal Left kicking and screaming into the 21st Century – and impose the dramatic reforms required to extract Italy from the mire.
He promised two urgent reforms: (1) of Italy’s absurd electoral system which gives the party with the most votes, however few, enough extra MPs to form a majority; (2) of Italy’s 1970s style jobs for life labour market laws which make it virtually impossible to sack anyone with a full-time contract and therefore virtually impossible to hire anyone.
Initially, he said he needed 100 days; now he says he needs 1,000 days. Needless to say neither reform – in typical Italian style – has happened. So the only tangible thing to have occurred in his first year in power – despite all the talk – is that he has got noticeably fatter.
But even if those two reforms were to become law they would be mere drops in the ocean. Italy’s problems run far deeper than that. Its massive, unsustainable, sovereign debt explains why: this has been used for half a century or so to finance a standard of living that Italy cannot afford. The annual interest payments alone on the debt are now 80 billion euro more or less – the cost of Italy’s Ministries of Defence, Education and Environment combined.
In Italy, as elsewhere in Europe, notably France, the dirigiste mindset which is neither Left nor Right wing but thinks the state knows better than the market, has dominated post war politics and operates like a protection racket involved in every nook and cranny of the economy – including in Italy even newspapers, which are heavily subsidized with public money. In the absence of any genuine anti-dirigiste Thatcherite to hack back the state the only other alternative was to increase the debt. So Italy did so in spades.
The euro, whose impotence was exposed by the 2007/8 banking crisis, was not the cause of the economic crisis in Italy which is now existential (Italy has been in recession more or less ever since) but it was the catalyst and it left Italy with no place to hide anymore.
At the end of 2014, Italy’s unemployment rate reached a record 13.4% but in reality is much higher because the Italian state pays failing companies to keep staff employed doing nothing at home. There are currently about 500,000 Italians in what is known as cassa integrazione. Meanwhile just 58% of Italians of working age actually work (compared to 65% in other developed countries). So the real unemployment rate in Italy is at least 15% and probably 20% while youth unemployment is a staggering 43%.
The Eurozone, Italy included, is now also in deflation which means higher interest payments on the public debt and lower demand – thus making economic recovery even more remote. To combat this Mario Draghi, President of the European Central Bank, announced last month (against fierce German opposition) a massive Quantitative Easing programme. But it is too little, too late, analysts concluded.
Between 2007 and 2014 Italy lost one quarter of its industrial production and in the past five years its economy has shrunk by 9.1%. Its property market has collapsed – no one is buying and no one is selling – as so many Brits who want to off-load their stone farmhouses in Tuscany know only too well to their cost.
Renzi – the demolition man – also promised to reduce taxes. He has not. The “total tax rate” on Italian businesses remains – according to the financial daily Il Sole 24 – the highest in the world at 68.6% – compared to 36% in Britain and Italy’s basic VAT rate a scandalous 22%.
You might think – as do many Chinese entrepreneurs – that now is the time to buy up Italy big time with prices at rock bottom. But add to the mix Italy’s endemic corruption, mafia, stifling bureaucracy, murderous taxes, jobs for life labour laws, and byzantine judicial system, and you begin to understand why no sane foreign company sets up shop in Italy if it can possibly avoid it. Numerous failed Italian airports which used to be state owned are for sale for virtually nothing for example but no one wants to buy them. They do not want all that Italian hassle.
Those millions of Italians who work in the bloated state and para-state sector, on the other hand, continue to live the life of Riley. They are Italy’s sacred cows, Take Italy’s MPs: they are the highest paid in the world and get a monthly gross salary of 11,703 euro plus basic monthly expenses of 4,003 euro – a British MP’s monthly salary by contrast is a paltry 6,500 euro gross – plus the odd duck house or porn video.
Even hairdressers at the Italian Parliament get up to €136,120 a year gross and the running costs of Il Quirinale, the palace of President of the Italian Republic (not to be confused with the Prime Minister), are more than those of the White House and Buckingham Palace combined.
Yet the average Italian worker’s take-home monthly pay where I am in Italy – the province of Ravenna which is said to enjoy the highest standard of living in Italy – is 1.000 euro.
The most depressing statistic of all though is that the birth-rate in Italy – famous in living memory for huge extended families – is virtually the lowest in the world (one point something children per woman). If it were not for immigration its population would be shrinking. As it is, the ratio of old to young is growing exponentially. Italy now has the most citizens in Europe aged 60 and over – 25% – and by 2050 this is due to rise to 50%. There will not be enough young people to pay the health and pension bills of all these old people – even if they had jobs. When women refuse to breed it is a sure sign of a terminally ill society.
