Early last month, in a column on my hopes and fears for 2017, I fretted about fiscal chaos in Italy leading to default and bailouts.
Simply stated, I fear that Italy, along with certain other “Club Med” nations, has passed the point of no return in terms of big government, demographic decline, and societal dependency.
And this means that, sooner or later, the proverbial wheels are going to fall off the bus. And it might be sooner.
On Shaky Ground
I don’t always agree with his policy recommendations, but I regularly read Desmond Lachman of the American Enterprise Institute because he is one of the best-informed people in Washington on the fiscal and economic mess in Europe.
And Italy, to be blunt, is in a mess.
Here’s what Desmond just wrote about the country’s economy.
…while the euro could very well survive a Greek exit, it certainly could not survive in anything like its present form were Italy to have a full-blown economic and financial crisis that forced it to default on its public debt mountain. …Among the reasons that there should be greater concern about an Italian, rather than a Greek, economic crisis is that Italy has a very much larger economy than Greece. Being the third-largest economy in the eurozone, Italy’s economy is around 10 times the size of that of Greece. Equally troubling is the fact that Italy has the world’s third-largest sovereign bond market with public debt of more than $2.5 trillion. Much of this debt is held by Europe’s shaky banking system, which heightens the risk that an Italian sovereign debt default could shake the global financial system to its core. …the country’s economic performance since 2008 has been abysmal. Indeed, Italian living standards today are around 10 percent below where they were 10 years ago. Meanwhile, Italy’s banking system has become highly troubled and its public sector debt as a share of gross domestic product (GDP) is now the second highest in the eurozone.”
And here’s some of what he wrote late last year.
…today there would seem to be as many reasons for worrying about the Italian economy as there were for worrying about the Greek economy back in 2009. Like Greece then, Italy today checks all too many of the boxes for the making of a full-blown economic and financial crisis within the next year or two. …the Italian economy today is barely above its level in 1999 when the country adopted the Euro as its currency. Worse still, since the Great Global Economic Recession in 2008-2009, the Italian economy has experienced a triple-dip recession that has left its economy today some 7 percent below its pre-2008 crisis peak level and its unemployment rate stuck at over 11 percent. …deficiencies of its ossified labor market that contributes so importantly to the country’s very poor productivity performance. As a result, since adopting the Euro in 1999, Italy’s unit labor costs have increased by around 15 percentage points more than have those in Germany. …Italian banks now have around EUR 360 billion in non-performing loans, which amounts to a staggering 18 percent of their loan portfolio. If that were not bad enough, the Italian banks also hold unhealthily large amounts of Italian government debt, which now total more than 10 percent of their overall assets. …the country’s public debt level has risen from 100 percent of GDP in 2008 to 133 percent of GDP at present.”
The numbers shared by Lachman are downright miserable.
And he’s not the only one pointing out that Italy’s economy is in the toilet.
I shared numbers last year showing the pervasive stagnation in the country.
So what’s the Italian government doing to solve these problems? Is it slashing tax rates? Reducing the burden of government? Cutting back on red tape?
Of course not. The politicians are either making things worse or engaging in pointless distractions.
Speaking of which, I’m tempted to laugh at the Italian government’s campaign to boost birthrates. Here’s some of what’s been reported by the New York Times.
…a government effort to promote “Fertility Day” on Sept. 22, a campaign intended to encourage Italians to have more babies. …Italy has one of the lowest birthrates in the world… Italian families have been shrinking for decades. In 2015, 488,000 babies were born in Italy, the fewest since the country first unified in 1861. It has one of the lowest birthrates in Europe, with 1.37 children per woman, compared with a European average of 1.6, according to Eurostat figures.”
By the way, I actually commend the government for recognizing that falling birthrates are a problem.
Not because women should feel obliged to have kids if that’s not what they want. But rather because Italy has a massive tax-and-transfer welfare state that is predicated on an ever-expending population of workers (i.e., taxpayers) to finance benefits to retirees.
But old people are living longer and low birthrates mean that there won’t be enough taxpayers to prop up the Ponzi Scheme of big government.
But while the government deserves kudos for acknowledging a problem, it deserves mockery for thinking empty slogans will make a difference.
More of the Same
Moreover, there’s also a problem in that Italian voters have been so conditioned to expect handouts that they think the answer to the problem is even more government!
The problem is not a lack of desire to have children, critics of the campaign say, but rather the lack of meaningful support provided by the government and many employers. …”I still feel very offended,” said Vittoria Iacovella, 37, a journalist and mother of two girls, ages 10 and 8. “The government encourages us to have babies, and then the main welfare system in Italy is still the grandparents.” …Italy’s government has tried to help families with a so-called baby bonus of 80 to 160 euros, or about $90 to $180, for low- and middle-income households, and it has approved labor laws giving more flexibility on parental leave.”
Ms. Iacovella is crazy for thinking that more taxes, more spending, more regulation, and more mandates will make things better.
Heck, even leftists are now admitting such laws undermine employment and specifically hurt women by making them less attractive to employers.
Meanwhile, the Italian government is taking lots of other dumb steps. Including, as reported by the Telegraph, creating a new entitlement for teenagers.
Italian school leavers may face the dismal prospect of 40 per cent youth unemployment, but at least they have one thing to look forward to – a €500 “culture bonus”, courtesy of the government. From next month, every 18-year-old will be entitled to claim the money and spend it on culturally enriching pursuits such as going to theatres, concerts and museums, visiting archaeological sites, and buying books. The scheme, which starts on Sept 15, will benefit 575,000 teenagers, at a cost to the government of €290 million (£250 million).”
By the way, is anyone shocked to learn that Italian teenagers look forward to these handouts?
…it has been welcomed by 18-year-olds, who face a difficult economic landscape when they leave school – high unemployment, a lack of secure, long-term contracts and an economy that has performed dismally for a decade. “Of course we’re happy…,” said Angelica Magazzino, a teenager from the southern region of Puglia who turns 18 in November.”
If you read the entire story, you’ll learn that the government justifies this new entitlement by saying it will fight terrorism. I don’t know if that’s more crazy or less crazy than the American leftists who blame terrorism on climate change or inequality.
Last but not least, CNN is reporting that the government is also enabling other forms of Italian “culture.”
Italy’s highest court has ruled that masturbation in public is not a crime, as long as it is not conducted in the presence of minors.”
No, this is not a joke.
The decision came down from the Italian Supreme Court…in the case of a 69-year-old man…The man was convicted in May 2015 after he performed the act in front of students on the University of Catania campus, according to documents filed with Supreme Court. The man was sentenced to three months in prison and ordered to pay a fine of €3,200 (around $3,600). However, the defendant’s lawyer appealed the case to the country’s highest court, which ruled on the side of the accused in June but only just made its decision public. Judges ruled that public masturbation out of the presence of minors is no longer deemed criminal conduct due to a change in the law last year, which decriminalized the act.”
Great. I’m looking forward to my next trip to Italy. Though I guess it’s nice to see Italian seniors are staying active in their communities.
P.S. Amazingly, some leftists think the United States should have a bigger government and be more like Italy.