All Troubles on Italian Front – Fiat Euro! 45/2014

Italy is crying for attention. And it should get it.

The sick man of Europe – France – is all over the economic papers for almost a year now. But while the critique focused on Holland and his companions, the biggest economic nonsense competitor walked quietly in the shadow – Italy.

Over the past two weeks, two events drew the attention to the south of the Alps. First, leaving President of the Commission Barosso sent a secret letter to the governments of France and Italy (via Vice-President Katainen). In that, the Commission expressed disappointment at the presented budgets of both countries and requested an explanation on how, actually, they plan to achieve compliance with the Stability and Growth Pact. The rejection of both budgets was at stake.

And how do we know about this secret? While Hollande – already used to those kinds of requests – just shrugged his shoulders over yet another one, Italian PM Renzi decided to publish the letter. And not only that. He warned about disclosing all information regarding the wasting of money in the “EU Palaces”.
He also added that we are “going to have some fun.”

But we already had fun last week, although, not the one Renzi planned… In the bank stress tests 9 out of 15 Italian banks failed. Some of them already added capital in recent months, the others still need to add over three billion. Especially the Italian Central Bank must have felt ashamed as it was the one claiming in the past that it knows how to deal with its work and does not need any advices from the outside. Italian banking system is extremely important for the country’s economy – the firms rely on bank supplies much more than in Germany or France. Moreover, many of the 690 Italian banks are managed by foundations which are controlled by local politicians who use those banks as their tools. The whole system is bearing 320 billion of non-performing debt (16% of the total amount of loans).

But that is just one drop in the ocean of economic problems. Italian economy began to stagnate long before the crisis, its public debt is the second highest in the EU. The labour market is doing catastrophic. Due to the extremely heavy layoffs (often stopped by courts) two castes of employees formed, like in Spain. The one consists of those with permanent employment, the other one are part-timers, with whom the companies are trying to compensate the lack of their flexibility. No wonder that the absences are amounting to 10% and leap mysteriously especially on Mondays and during major football matches. Renzi tried to implement the labour law reform – and 150.000 people took to the streets. Italian economy is obviously a skein of interest groups, where no one wants to lose his position, especially not the trade unions. You can find a lot of absurd situations in Italy, such as the Parliament’s errand boys who earn 140.000 euro a year (and the parliament has 2.300 employees!). And so in the absence of real reforms, the Government comes up with such desperate ideas as free Wi-Fi – supposed to help the Italian economy.

Italy is facing the same destiny which Greece is almost over about. The country is preparing to leave the rescue program. There is 11 billion euro in its back pocket to be used as an emergency source in case the state funding is not working well. The plan includes, inter alia, the need to get 6-9 billion of debt on the market.

And this can be a challenge. Two weeks ago, interest rates on Greek bonds soared up after the polls were clearly won by antibaillout SYRIZA.

Its leader Alexis Tsipras has already made a tour around European politicians. Parliamentary elections are scheduled on 2016 in Greece, but already in February the Parliament elects a new president. If it won’t find a consensus, early elections will be called. And since there’s need of 180 votes and coalition only disposes with 115, it will be interesting.

The United Kingdom is, traditionally, solving its own problem set. Cameron is taking care to be seen as tough opponent of Brussels in front of his voters. No wonder then, that he doesn’t like the latest requirement for Britain – to pay additional roughly two billion euros to the European budget, as based on the new measurement of GDP. A referendum on withdrawal from the EU is already a done deal and every similar requirement just adds the additional weight on the balance in its favor.

Withdrawal from the EU is also about Brussels bureaucracy and loss of decision-making power of domestic politicians (even though, London knows well how to embitter its citizens’ lives), but especially about immigrants. Whenever we talk about immigrants, populism plays the first league. According to the latest analysis though, immigrants paid £20 billion more in taxes and levies than they received back from the system. Too bad that such an information is easy to get lost in the flood of other news. Like an own goal of Nigel Farage. The leading Eurosceptic and immigration opponent said a few days ago, that Britain should adopt a similar system for immigration as Switzerland has. However, after recalculation provided by the Open Europe think tank, it seems that Britain with Swiss system would have to welcome 400.000 immigrants more every year!

Orban’s government has stepped aside and did not imposed the “innovative” tax on the Internet. But there is never a lack of new tax ideas and so, let’s fly to Spain this time to conclude this issue in a funny way (or tragic – depending on how seriously you take it). Local government has decided to impose a tax on Google. Google will have to pay a fee for every report of Spanish newspaper included in Google News. When Germany introduced a similar law, local publishers eventually lost. Google just took out some papers and subsequently, their page views fell.

But the Spanish government believes the opposite. Well, even in Spain, the CT scan will not pay off just by itself!

Martin Vlachynský
6.11.2014
Translated by Stanislava Dovhunová

 

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