The Italian debt crisis is far from
Added on August 20, 2011
On August 13, 2011 Prime Minister
Berlusconi and Finance Minister Tremonti put through a series of urgent
financial measures in the Decreto-Legge n. 138, which was coming into
effect the same day thanks to the signature of President Napolitano. I had
the pdf file of the
Decreto-Legge n. 138 with its 20 articles in front of me for a week.
Unfortunately, it is written in gobbledegook. Therefore, we just have to
believe Tremonti who summed it up as additional €45.5
billion in cuts which have to be added to the July
asking for €48 billion in savings. In
total, Italy will have to live with some €93,5 billion in public budget cuts
over the next three years (2012-2014). It remains to be seen whether what is
on paper will be implemented. If so, it will represent an important first step towards fiscal sanity and debt reduction
Article added on July 18, 2011
The adoption of the
Italian austerity budget in an historic
express vote in both chambers of parliament and its promulgation just half
an hour later by the Italian president does not mean the end of Italy's
The Italian debt crisis is far from over because Italy has been a low growth
country for many years. Even if the budget deficit will be reduced to zero
by 2014 as planned, the public debt will remain around 120% of GDP.
Italy has a long term debt problem. Structural reforms are needed to find
back to growth. Without growth, the debt cannot be paid down. Decades of
political and economic mismanagement cannot be corrected by an
Speculators have still years to attack Italy over its gigantic debt burden.
Every now and then,
“ordinary” investors will grow wary of Italy's capacity to pay back its credits
and/or to pay its interests on the 120% of GDP mountain of public debt.
Therefore, Italy will remain under pressure for years. It is too big to fail
as well as too big to be saved by the European Union. As a consequence, the
Euro will remain weak.
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Italy should never have joined the Eurozone because - as Belgium and Greece
- it did not fulfill the Maastricht criteria of a maximum public debt of 60%
of GDP. It is now up to the Italian voter, tax payer, politician and
business community to comply with Maastricht in the long run.
The austerity budget as well as Prime
Minister Berlusconi's announcement not to stand for reelection are first
steps in the right direction. The giant bureaucracy, red tape, the lack of a
business friendly environment, tax evasion, the huge black economy as well
as the Mafia and its
“parallel” economy are some of the structural problems Italy has to face.
Already now, too many able and dynamic young and old people are leaving
Italy. A continuing brain drain is the last thing Italy needs.
In addition to a business friendly environment, Italy needs credible and
fresh political faces. One of the reasons for Berlusconi's long and infamous
reign is the lack of able politicians as alternatives, both on the left and
on the right.
Italy showcases the slow but steady decline of the Western world. In the EU
as in the US, the welfare state has reached its limits. The financial crisis
has shown that Ordoliberalism is needed more than ever. The times of the
Nanny State are over. Ordoliberalism was Germany's answer to the failures
and excesses of the Weimar Republic and Laissez-Faire, although as much
Laissez-Faire as possible has to be allowed. A strong state is needed that
eliminates monopolies, oligopolies, cartels, subsidies, red tape and that
takes care of a functional state with an adequate infrastructure and
educational system. Free trade and accountability - playing by the rules
also for banks and other financial institutions - remain keywords for
prosperity in the 21st century.
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