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The unspoken truth about the eurocrisis
Articles on Italy before 2014

  • (august 2014) The unspoken truth about the eurocrisis. There are certainly financial reasons behind the eurocrisis, but there are also simple, practical issues that (southern) Europeans keep hiding. Italy, Europe's second largest manufacturer after Germany, is a perfect example. A special Reuters report (July 14, 2014) provides a good summary of the situation: "Italy's economy has barely grown since 1994 and has shrunk since 2000, worse than any other country in Europe;" "more than 120,000 Italian manufacturers have closed shop"; "Italy is the only EU country whose total factor productivity has declined since the start of the century"; "Foreign direct investment in Italy has fallen by 58% in the last six years and is less than half that in Germany, France or Britain"; "Since 2011 an estimated 250,000 Italians have moved to London alone, making it the sixth most populous Italian city"; etc.
    Italy has just entered its second recession in five years, and unemployment among young people is almost 40%. However, millions of Africans, Arabs and Eastern Europeans moved to Italy because they found jobs in Italy. Those were jobs that Italians did not want. On a sunny spring morning i was in Pisa's Piazza dei Miracoli. I didn't know that the monuments open at 11am, and hundreds of foreign tourists didn't either. While waiting, we needed simple things: souvenirs, food, batteries. All the shops run by Italians were closed. Souvenirs were being sold at every corner by Africans. The only restaurant that was open for breakfast was run by Middle-eastern people. The only general store where one could buy camera batteries was run by Chinese people. The obvious conclusion is that only illegal immigrants work in Italy: Italians sleep, go to the beach, watch television, etc. I met an Albanian kid who has worked for a year in Italy, changing jobs three times, each time for a higher salary: in a factory, in a bakery, in a private clinic, and (legally) for the Italian railways (cleaning trains). He saved enough money to pay for a master in Norway. A foreign observer gets the impression that Italy would come to a standstill if all immigrants left Italy.
    Italy graduates fewer university students (as a share of the population) than any other EU country. Given the low cost of education, one cannot blame this on government policies. At some point Italian families will have to face the truth: they are raising a generation of young Italians who don't want to study and don't want to work. That's one major reason (not the only one but a major one) so many of them remain unemployed.
    Italians complain that their economy is being sabotage by widespread corruption and wasteful government spending (Italy's public debt is now 134% of GDP). True. But the politicians who sustain that cycle of corruption have been elected by the people. (And, by the way, China, India and many other countries have worse corruption than Italy but none of Italy's problems). Berlusconi spent 20 years shaping laws that basically gave him immunity from the various criminal charges levied against him by the judiciary. He was reelected several times. His laws were approved by a democratically elected government that included all sorts of people indicted by judges all over Italy. Comedians routinely joked that the worst slums in the world would be scared if the Italian parliament came to visit. Berlusconi's government coalition included the Northern League, that ran on an anti-corruption platform... This is all true. Italians don't mention the silent "pact" between the electorate and the government, that sounds like this: "we let you rob us naked as long as you let us break the laws and cheat the state and as long as you continue to legitimize all sorts of wasteful spending". Countless Italians (or their relatives) benefit from wasteful spending. For example, newspapers pretend to be outraged that a porno star gets a gigantic pension (she was briefly elected to parliament) but the truth is that thousands of Italians get generous pensions, and some of them hardly ever worked (they were declared invalid by friendly doctors) and many worked only for a couple of decades (before benefiting from laws that allowed them to retire early). All these electors would never vote for a politician who promises to change these wasteful pension system: they would be hurt as much as the pornostar. Hence a politician who truly promised to cut wasteful spending could never be elected. Most families have at least one member who benefits from this system. Hence, someone who wants to change the system is unlikely to be elected. The Italian Tourist Board spends an astounding 98% of its budget on salaries with basically $0 left for its actual job: tourism promotion. It would make sense to lay off a few of these employees but that would upset the families and friends of those employees, whereas having zero budget for tourism promotion only upsets the tourists (never mind that this ends up damaging tourism itself).
    Bottom line: ask Italians how to cut spending and nobody really has an answer, because any saving measure would hurt a friend or a relative. Cutting pensions, cutting jobs in the public sector, cutting wasteful spending... any of these would hurt one or more of your family members.
    Professions such as notaio and geometra still prosper... and slow down the economy; not to mention the ubiquitous tabacchino, who in theory sells tobacco but in practice sells essential items such as bus tickets and government stamps. Since hundreds of thousands of families benefit from these jobs, it is unthinkable of abolishing them (or even just reducing their importance in daily life); never mind that the damage to the efficiency of the country is colossal.
    For a nation whose revenues depend so much on tourism the treatment of tourists is astonishing. Traveling to San Gimignano (one of Europe's prettiest villages) is telling (2014). The train station is called Poggibonsi. There is no information booth and no ticket booth (just a bookseller who does not speak any second language). In fact, usually (and certainly on sunday afternoons and various holidays), there is absolutely no human being around to ask a questions. The automatic ticket machine does not take international credit cards (as of 2014) and in any case only sells tickets for the train. To get to San Gimignano you need to buy a bus ticket (a very expensive 2.50 euros for a 15 minute bus ride) that you cannot buy on the bus itself (that would be too easy). If (as usual) the bookseller is not working, there is no way to buy a bus ticket at the station. As i mentioned, there is also no way to buy a train ticket unless you have cash (and the cash ticket machine works). There is no luggage deposit so you need to take all your suitcases with you to San Gimignano (where, you guesses right, there is no luggage deposit either). Once in San Gimignano, you realize that there is no bus to get back to Poggibonsi for your connection to Florence. The local people are very kind, but the information they provide, based on wishful thinking, is invariably wrong. Hence you may end up paying for an outrageously expensive taxi to get back to Poggibonsi where your little stone-age wildly overpriced train to Firenze or Siena will almost certainly be late anyway. We ended up buying train and bus tickets for just about every destination because we were afraid of having to deal with unmanned ticket booths all the way to Florence and beyond. We were also terrified that, sooner or later, we would forget to "validate" a ticket (buying the ticket in Italy is not enough, you also have to validate it), so we validated all of them right away. If you forget to validate your ticket for any train or bus ride, the fine can be as high as 200 euros. Luckily, a couple of British tourists offered us a car ride to Florence so we didn't use any of those tickets. This is all very picturesque, but, needless to say, infuriates scores of tourists every day. Oh i almost forgot: we didn't manage to see San Gimigrano, nor Siera, nor Florence. We simply spent one day and a half trying to travel to any of these places. Nor could we find a regular store where to buy a regular gift: around the train stations there are now only expensive stores that sell leopard-skin purses or exotic perfumes. This was in 2014 when every Italian was complaining that fewer and fewer tourists were coming to Italy. No, really? In other words, the quality of service is exactly what it was in the 1960s. The monuments are also the same, of course. This means that the only thing that has changed is the prices: what used to cost 100 lire (0.05 euros) now costs 2 euros. This rule can be applied to a lot of things in Italy: prices skyrocketed but the goods and services that you buy are roughly the same. In fact, photos of Italy in the 1960s depict a charming non-commercial country that was probably friendlier than today's city centers are.
    There is another, less visible, way in which Italians (and not only Italians) have caused their own problems. Ask an Italian which trendy technology the country should invest in and the answer will be ambiguous at best. Italy used to boast one of the world's largest computer companies, Olivetti. Unfortunately, Italians were among the least enthusiastic endorsers of information technology. They were even reluctant to use automatic teller machines and answering machines when they came out. The Italian computer industry was mainly selling abroad. Eventually, it lost to competitors who were based in countries where customers actually bought computer technology. Italy also used to boast one of the greatest schools of nuclear engineering in the world. Two referendums killed nuclear power in Italy. Those engineers have spread around the world. Nothing has been left in Italy. On the other hand, Italy imports nucler energy from France and Switzerland, two highly nuclear neighbors. The net result is that Italy lost the nuclear industry but still uses nuclear energy (at a much higher cost). The funny thing is that Italian emigrants relocate to Switzerland, France, Britain, and USA, all countries with nuclear power and even genetically modified food
    Biotechnology is virtually impossibly in a country that is obsessed with "natural" food and the likes.
    Italians like to complain about the infrastruture of their country but it is Italians who have opposed every major project (such as the bridge connecting Sicily to the continent). Bullet trains are not seen as useful services but annoyances (and environmental hazards). The result is that Italy's infrastructure is aging very rapidly.
    Bottom line: ask Italians which technology the country should invest in and nobody really has an answer because any contemporary, trendy technology would face popular opposition, distrust, etc.
    "Investment in research and technology is about half the level of France and Germany as a proportion of economic output" writes Reuters: but where should government and corporations invest in a country that is chronically hostile to technological and scientific progress? "High-tech goods like computers, electronics and pharmaceuticals make up only 6% of Italy's exports". No wonder.
    Entrepreneurs complain about bureaucratic procedures that feel more psychological tortures than anything else. The motivation for someone to start a business in Italy is very low: you have to deal with an inefficient state that imposes a grotesque burden of bureaucracy on you and does not provide the computerized tools to fulfill your obligations? Corporation-hostile policies and political instability make it difficult for companies to invest in hiring people, which means that most Italian companies remain too small to compete globally. Italian businessmen are not stupid, they are simply in the wrong country: when they move operations abroad, they usually succeed. However, complaining against the government for the red tape that kills investment and growth is unfair: the red tape exists to give people what they want (a safe job, no stress, lots of vacations, etc).
    There have been rare demonstrations (and no riots) in Italy during the last 20 years. You cannot explain it in the context of widespread discontent unless you understand that Italians are complaining about a system that, fundamentally, they DON'T want to change. Those who truly don't like the system emigrate abroad. They are the ones who would stage violent protests against corruption, wasteful spending, lack of investment in research, hostile bureaucracy, etc. Let's face it: the whole nation is happy that they move abroad, so they don't wreak trouble in Italy. The vast majority of Italians don't want to change a system that pays their father's early retirement, their son's unemployment benefits, their wife's public salary, and keeps alive their cousin's "notaio" job and tolerates their uncle's tax frauds.
    Compare with Poland, the rising star of the European Union (the only country in the EU that did not suffer from the global recession). Finance minister Leszek Balcerowicz engineered tough reforms in 1990 that set the course for a 20-year economic boom. But that happened because the Polish people, across all sectors of society, truly wanted change, and especially the young ones.
    Nonetheless, prices in Italy and in Europe in general can be mindboggling. I left two pieces of luggage at the cloak room in Verona (a small town in the northeast) and paid 12 euros (almost $20). Verona was actually cheap compared with Florence: 12 euros each piece of luggage for 12 hours. Walking up to the tower of Trani (not exactly the most important cathedral in the world) costs 5 euros. To visit Castel del Monte in Puglia you have to pay 5 euros for parking and then 10 euros each for the entrance ticket (in 2014). Food and clothes are equally expensive. If you drive, you pay for one of the most expensive gasolines in the world, and ditto for highway tolls; nonetheless, Italian highways are chronically congested. Prices are high because people are willing to pay those prices. Hence, the logical conclusion is that Italians are rich. Which, indeed, they are: Home ownership and household wealth are among the highest in the OECD. They are spending the wealth accumulated in previous decades. That's why they can afford to keep the current system in place. Their youth doesn't desperately need jobs, their elderly people don't desperately need higher pensions, etc. Since Italians are so rich, the Italian government should increase, not lower, taxes.
    Over the last three decades there have been plenty of politicians who warned of the coming apocalypse. They won very few votes. And even today a politician who truly wanted to change this suicidal system would not win more than a handful of votes.
    Italians keep blaming their politicians for the economic, cultural and moral decay of their nation. They just can't see what (who) caused the decline. An article by the distinguished writer Ernesto Galli della Loggia in the newspaper Corriere della Sera asks what happened to the Italian nation that used to nurture both high-quality bakeries and world-class cinema? "It is disappearing... destroyed by demented urban policies, by the destructive arrogance of the new political class... abandoned by an ignorant and indifferent middle class... It is a dream that is ending everywhere, from North to South... countless silent factories, countless streets where shops are closing." All of this is blamed on the political class. Meanwhile, on the other side of the Alps, Switzerland (that used to be a poor country a century ago) is enjoying its little Renaissance: money flowing towards scientific and artistic projects, healthy economy with little or no unemployment, foreign firms opening offices in its expensive cities. It is impressive that virtually no Italian wonders whether the only difference between Italy and Switzerland is really the political class. In my opinion the real difference boils down to simple decisions made by the people, not by their elected representatives: Switzerland has plenty of cheap energy thanks to its nuclear power plants, Italy has expensive energy thanks to two referendums in which a statistic-defying majority voted to kill nuclear energy. The politicians had nothing to do with this decision: it was the Italians, the vast majority of Italians, that made that decision. It would be useful to remind the Italians what caused the original economic boom, the one that started in the 1880s and that allowed Mussolini to pretend that Italy had become a world power: in the 1880s the government launched projects throughout the north to dam rivers and produce electricity. Milan became one of the first cities in the world with electrical lighting. Companies like Fiat were founded that would eventually employ tens of thousands of workers. The North became one of the most industralized regions in Europe (and to this day remains way more prosperous than the South). Energy production was the very trigger of the economic revolution that turned a very poor former colony of Austria, France and Spain into one of Europe's leading nations (Italy was founded in 1861 by uniting regions formerly controlled by those other European powers). Italy remained at the vanguard of energy production throughout the two world wars. In fact, it raised one of the most influential generation of nuclear physicists (one of which, Enrico Fermi, ended up inventing the nuclear reactor in Chicago). In 1987, instead, Italians voted against nuclear power, a decision that left Italy dependent on the nuclear power produced by neighboring France and Switzerland. That decision was emblematic of many other laws, regulations and oddities of the country that is too easy to blame on politicians when in fact they originate from desires expressed by the vast majority of people. Analysts like Ernesto Galli della Loggia are right to lament the decline, but totally miss the point of what caused that decline. Switzerland has laws that reward entrepreneurs and investors. Italy has laws that scare the hell out of entrepreneurs and investors (because ordinary people want all sorts of protection for their jobs and pensions). In 2012 Italy's courts sentenced six scientists to six years' imprisonment because they made wrong predictions about an earthquake (L'Aquila 2009), mainly because the mob demanded someone to be lynched, a trial that, to many external observers, brought back the ghost of the Pope trying Galileo. (I let you imagine how many scientists or experts of any sort would ever want to work in Italy knowing that they can be sent to jail for their opinions). In november 2014 the country is being paralized by strikes: workers are protesting not a law but the mere discussion of a law that would make it easier for businesses to lay off workers (something that happens routinely in Silicon Valley, with the net result of producing the highest wages in the entire world). Switzerland lives in the 21st century, Italy still lives in the 19th century. The politicians have had a marginal role in shaping Italy. Italy has largely been shaped by the Italians. Now the ancient shops are closing turning downtown areas into symbols of the depression. That is because the economy in general is an anachronistic economy that is sliding endlessly towards third-world status. The economic decline is causing a cultural decline, as it is often the case in history. Meanwhile neighboring Switzerland, that is much more business-friendly than Italy, is enjoying a boom of new specialty shops and of cultural projects. Suit yourself.
    TM, ®, Copyright © 2014 Piero Scaruffi All rights reserved.
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  • Articles on Italy before 2014

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