Wednesday, November 9

Italy's Reforms: A Debt Crisis Primer

- The EU starts backseat driving -
From where I sit, cyberspace was totally on fire with news of Berlusconi's impending resignation.  An eternal cynic, let's just say, I'll believe it when I see it.  Like many of his promises, he mixed his departure date into such a minestrone, that Italy's President Napolitano had to step in and stir the pot, promising that Silvio's timer had signaled his goose was now cooked.  So, if you want news on Berlusca's getting burnt, just google it.  
As for me, I'm more interested in the three-card monty he's been playing with the EU and IMF authorities.  He promised the EU reforms, but again, there was the typical Italian vagueness to his document that today provoked a 39 page letter asking for actual details on each of them.  
So, while everyone is rejoicing with a Ding Dong Berlusconi's Gone chorus, what has he wagered with his bargaining chip that the Italians are going to end up paying for, in spades?  [His last reform package was deemed unhealthy by the President, not for the reform content ingredients, but because all the pork he had ladened it with benefitting only him and his constituents: his party cronies.
So, here's a brief summation of the Legge della Stabilità - Stabilization Law and its later addenda submitted by the EU, color-coded for easy reference.  

Human Capital / 
This supposedly takes on schools and research, including new doctoral programs (like at Gran Sasso lab) along with clauses for 'digital innovation' like automated paychecks.  
I can't for the life of me figure out what with kickbacks how any of this, at least as presented, leads to austerity measures.  It looks like throwing new money to resolve old problems.

Small businesses get three years' tax breaks for hiring young people as apprentices, trying to give a leg up for hiring women, and letting people telecommute.    
Again, all I can see are businesses saying they've hired the young just for the breaks and then firing them the day the contracts expire.  Taxes will be higher to pay for the breaks.

Word on the street (but not yet in the final document) that the retirement age would be raised to 67 yrs for both men & women [Women in Italy used to get a few year's break given that they have double the workload (home & office) and the burden of taking care of their offspring until well into their 80s].
This is good & well, but of course, lawmakers can receive their pensions after only 35 months in office (and at any age).  Where's the belt-tightening?

Liberalization of Markets / 
Reorganization of local transport???  Forgive my ignorance, but what does that have to do with the price of pasta in Parma?  It looks like we're having a hey-day of issuing new government contracts for politicians to grease their palms further...
Reform of Professional Orders  Like Judges, Lawyers, Doctors and whatnot and of course, Healthcare Reform (read: cuts)
Aside from closing hospitals and firing staff (already in progress), I'm not sure how the rest saves us money, but, I'll give it a pass for now.

Here we have a reform of the (grossly incompetent, overblown, over-staffed, under-achieving ridiculous arm) ICE (Istituto Commercio Estero), a monstrous octopus whose job is to "promote Italian goods abroad".  I don't believe in these parking lots for political cronies and their extended families and would be all for it, if I didn't think it would end up as 'more of the same'. 
I would suggest instead (oops, that's supposed to be tomorrow!) a swift course in building user-friendly websites without Google Translate, made by professionals and not some html dropout, along with figuring out how to get items delivered without getting them stolen in the mail or without having customers spend a day home from work waiting for the delivery guy...
This would go far further in promoting Italian products abroad than anything any government agency could ever pull off.  Not to mention that a "reform" sounds like whoever is in power in 2012 gets to put his buddies in place.  I cite Berlusconi's pal Stanca from IBM who breezed through 58 million euro (that's over $85 Million) just to build the website (click here for my writeup).  This is the true reason why Berlusca wants to stay in power to "see through" the reforms and his party pals don't want elections. 
Italy's the no. 1 exporter of wines in the world, no thanks to ICE.

In this category, they are looking at initiatives to improve Italy's bandwidth and subsequently, e-commerce.  Sounds good to me, but...I still don't see how we're saving money here...

They're also planning on going after fake companies offering auto insurance (but as of this reading I don't see them going after the fakes getting pensions, the false invalids, the fake companies, the companies faking receipts, the companies and people faking their taxes)...Sorry, ahead of myself again.

There's a provision for simplifying the tourism sector.  How about just butting out?  People love to visit Italy. See website above.  'Nuff said.

Other provisions include incentives for auto dealers, improving energy efficiency & distribution, and other improvements for ports and highways.

So, how are we going to pay for all this?  
For starters, they've already raised the VAT tax on a few items (like highway tolls), although they left businesses alone as it would have put another dagger into the already-dead economy.
Gas prices are through the roof because of additional taxes levied to help pay for the devastation from the flooding of the towns (now dozens and counting) in Cinque Terre, Genoa, Matera, now Messina.  I'm sorry, but if I want to donate €90 to Genoa, I'll do it by my own volition -- I absolutely abhor this "taxation without representation" -- the basis of which created "These United States."  And besides, if they didn't ruin the landscapes by over-construction to begin with, we wouldn't have to cough up the gazillions now to resurrect these places...
I've found a few mentions of selling off State properties both in Italy and abroad, and others still occupied by the Defense Dept. [but no mention of halting orders on say, the 17 Maserati's recently purchased by the Ministry of Defense. "They're Italian-made, before they were Audi's", the Minister stated in his defense.  So are FIAT 500s.  And besides, perhaps Audi's last longer.] 
One thousand teachers will be let go (none in Parliament, however).  State employees will no longer get a free lunch (but Parliamentarians will).  
Unemployed who want to apply for State job bids will have to pay for their admission (€10-€15).
Cuts to Carabinieri & Police (most of whom are used to escort politicians anyway)
Cuts to the Monopoly Administration (insert your own joke here).
Different use for monies coming from Telecoms bids (4G).
Cuts to administering all the pay & pensions schemes & their over-loaded bureaucracies.

Tomorrow, I will give you my own list of proposed cuts that most every red-blooded Italian could not only live with, but would embrace wholeheartedly.  If only the EU would force Italy's hand in this direction (along with Greece's and their own corrupt systems) instead of relying on thinking debt goes away by raising the retirement age and other half-measures as the ones above suggest.


Dave514 said...

I done toll you, Socialisn don't work,especially in in Italy .

Just to show you how much confidence the US has in Italy and Bungs Bunga's reforms, the Dow Ind were down almost 400 points.

Surprise, surprise, rhe,Lira is baaaaack!!!

Anonymous said...

"bicho malo nunca muere", says a friend of mine!"

Dave514 said...

The Italian Government has just approved new austerity measures. Cut spending and increase taxes, result...eliminate growth and continue a downward spiral.

The Lira is baaaaaaaaaaaaack!

Irreverent Italy said...

Davide, in fact, a town near Arezzo has allowed transactions in liras for the month...You are an alarmist, but you might actually be onto something...!

chandi said...

while we don't know each other, I see you as incredibly smart and savvy about so much that is going on in Italy and I wonder if you can answer a question I have about banks in Italy related to the economic crisis... I don't know who else to ask! Do you know if Italian banks have the equiv of the FDIC? Would my bank account in Italy be 'safe' should the crisis get really bad in Italy?

Irreverent Italy said...

Hi Chandi - Well, I'm no expert but...

Having an FDIC is not the real issue...The whole country would default & there would be no backup plan - you would just lose your value of currency to whatever point they would repeg it...

Italy needs to devalue their currency. But, in the eurozone, they can't. And people are probably busy hedging their bets whether or not Italy will default...
So, what happens? If Italy defaults, of course the euro fails...Your euros can be worth very little...

Add to this my personal paranoia that Italy, in order to enter the euro zone, one fine day just went in and took money from everyone's bank accounts. They could do so again too to make up the difference.

On top of that, bank charges & taxes are so high, you never get interest here, just pay about $300 per year (the highest in europe & double that of France, the next highest) just to keep your funds in an account..

I would leave your money in the USA, use a bank card...and then maybe, maybe open an online bank account (I recommend ING) should you need more funds or a debit card or whatever...

Let me know how it goes -- I think (despite what my blog says) you will love it...but, of course, forewarned is forearmed...

I have posted my email address above if you'd like to continue the conversation elsewhere...