
Italy’s austerity-fueled crisis is a warning to the Eurozone - howard941
https://www.ineteconomics.org/perspectives/blog/how-to-ruin-a-country-in-three-decades
======
johnzim
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.

~~~
k__
Wasn't the problem of countries like Greece and Italy corruption?

~~~
monocasa
Austerity didn't help. The R&R paper that they based the austerity on turned
out to not be properly peer reviewed, and surprise, had a some arthmetic
errors that when fixed contradict the original result.

~~~
rohit2412
Wait what? Could you expand on that?

That seems to be very stupid "mistake" from some very important economists.

~~~
monocasa
[https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt](https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt)

------
pif
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
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.

~~~
znpy
It's worth adding to the discussion that Berlusconi's influence has begun way
earlier that many people would think .

It is a know fact for example that in early 90ies when journalist Marco
Travaglio was strongly criticising Berlusconi, Berlusconi was effectively able
to get him fired via his control of the advertising company Publitalia 80.

Advertising was already at the time one of the major source of revenew for
newspapers, and Publitalia 80 straight up refused to buy advertising space
from newspapers that employed Marco Travaglio.

In the end, Marco Travaglio had to create his own newspaper in order to be
able to continue do his job.

This was early 90ies. Immagine what more than twentym (thirty?) years of this
have made of public information (both public and private).

------
chewz
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-a6e5-792428919...](https://www.ft.com/content/b3c85b34-e10a-11e8-a6e5-792428919cee)

~~~
wazoox
Oh yes it is. The Eurozone has exactly ZERO transfers. What is the proposed,
officially sanctioned solution? Lower salaries. Austerity. Impoverishment.
Then what happens? Fascism. Slow clap...

We've tried this shit before, it was the gold standard in the 20s. Remember
how it ended? Yeah, it was a heck of a good job!

The whole Euro project is brain-dead, and it's killing the EU, fast. Wait to
see the results of the coming European elections...

~~~
Udik
I don't think the two explanations are mutually exclusive. Yes, given the
limitations of Italy's society and economy, the euro is probably causing
damages (not in a absolute terms, it has also positive sides, but let's
pretend it's a net negative).

At the same time, Italy's economy and society are losing the pace with the
rest of the world. This _might_ be also a consequence of long economic
stagnation due to the euro, but it's definitely a cultural trait: people are
angry, distrustful, poorly educated, incapable of finding common ground even
on the basics. The political crises of the last thirty years have left a deep
mark on the public opinion, which is now suspicious of every public project,
every politician, every successful entrepreneur, and addicted to news of
political scandals.

There is nothing that Italians seem to enjoy more than seeing a politician or
entrepreneur indicted for corruption; the widespread idea is that _someone
stole the money_ , and the most approved government measures are those that
redistribute public money and punish this or that perceived offender.

Source: I'm Italian.

~~~
david-gpu
You have described the political landscape in Spain to a T.

I fear than in the upcoming general elections we will see the rise of the
populist far right, and with it further polarization of the political
landscape.

Source: am Spaniard.

~~~
Udik
Sorry to hear that. I also wonder how much this depends on local, contingent
events, and how much can be attributed to internet and social media, where the
outrage is the driver of clicks and attention, and uninformed conversations
thrive.

Populists are on the rise everywhere. On the side, the bursts of social
justice outrage in the US might be just a different, leftwing expression of
the same mechanisms that produced Trump on the right. We urgently need
cultural tools to deal with the consequences of social media.

~~~
wazoox
Populist are on the rise because oligarchy has stolen money and power
everywhere. Don't look for pseudo "cultural" reasons (bordering on xenophobia,
racism or classism) where a basic Marxist analysis works marvels. Do you
really think that Italians are angry and lazy, and Brits too, and Greeks, and
Spaniards, and French, and Trump voters? Because of Facebook? Really? Come on.
This is silly.

~~~
Udik
I'm glad that you asked :)

I think that yes, a lack of economic growth (in some cases) and an increasing
disparity in wealth (in others) makes people angry, and distrustful, on the
long term. I also think that "oligarchies stole the money" is an incredibly
simplistic explanation for the lack of growth- there are at least two factors,
the competition from emerging countries and software, that have removed low
skilled and low added value jobs from the West. But still the countries who
kept up with their industry and education managed to thrive.

On the other hand, the people's anger doesn't come with an understanding of
the issues and their causes; it's more of a general bad mood that disrupts
everything, what is wrong and what is right in the same way. So that people
fight against the problems _and the solutions_ alike.

And yes, I think social media act as a multiplier of this unproductive anger,
because they give a voice and an audience to those who lack the minimal
educational standards that have been traditionally required to those who wrote
for the public. It's classist? Fair. But it's true.

Information used to flow from an educated elite (think of the incredibly
ponderous and boring articles of Marxist newspapers, if you want) to the
masses, who tried to absorb and follow (with all the risks that this entailed,
as well). In Italy the single voice of the communist party, through its press,
could reach every peasant and set the line. While now the communication is
horizontal and universal, and angry, uninformed opinions spread and reinforce
each other. It's clear since a long time (think of tabloid covers) that
indignation, outrage, scandal are extremely successful memes. They survive and
spread replacing everything else. We need to learn how to deal with this, not
with censorship, but culturally.

------
logicx24
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.

------
kartan
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
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
> 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
Fair point but I think the problem is that the brain drain is exacerbating the
other structural problems in the eurozone.

------
bjelkeman-again
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.

~~~
kmlx
abyss? the UK is one of the best examples of capitalism and free trade in the
world.

London is the world capital of finance, with NYC and Tokyo on 2nd place. the
UK is ahead of the RoW when it comes to finance by at least 2 years.

northern Europe is too small to matter on the world stage. the Tokyo
metropolis is larger than the whole of northern Europe in terms of population
and wealth.

~~~
kazen44
London might be doing great, but the rest of the UK has been left behind
decades ago..

~~~
kmlx
Only Yorkshire, North East and North West have been "left behind" (and that's
only when compared to the rest of the UK, not the rest of Europe). The rest of
the regions (SW, SE, E, both Midlands) have seen increases in wealth of about
30% in the last 20 years.

------
debatem1
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__
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
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__
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?

~~~
mercer
[https://en.wikipedia.org/wiki/Market_socialism#Marxism%E2%80...](https://en.wikipedia.org/wiki/Market_socialism#Marxism%E2%80%93Leninism)

------
lenticular
This is a great article. The EU has done tremendous damage through its
obsession with austerity.

~~~
alanpetrel
Were austerity instructions handed down by the EU or did the individual member
states decide to implement it themselves?

~~~
evancox100
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.

------
geargrinder
It took less than two decades for Venezuela.

~~~
laumars
David Cameron managed it with one referendum

------
perfunctory
After I watched The Great Beauty (La grande bellezza) my perception of Italy
as a relatively poor country was completely transformed.

------
glbrew
hug of death?

~~~
iscrewyou
[http://web.archive.org/web/20190412213052/https://www.inetec...](http://web.archive.org/web/20190412213052/https://www.ineteconomics.org/perspectives/blog/how-
to-ruin-a-country-in-three-decades)

------
napolux
Italian here. AMA :-)

~~~
youeseh
Dear token Italian: I thought your new government was Italy-first. What
happened? Austerity continues?

~~~
lou1306
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.

