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Saturday, January 9 2016
The Blog is Back!
I see that my last diary entry was in April 2014. And then I went off the radar. I stopped writing my diary because rather suddenly and unexpectedly my perspective changed. I’ll explain. When I wrote my diary it was as an outsider looking in at Italy, Italian society and culture. From the point of view of an “Anglo-Saxon”, as native english speakers are known here, Italy can seem strange, chaotic and just out-and-out weird. But the climate in terms of the weather is generally benign and pleasant, the food is wonderful and the landscape quite beautiful and these elements can render palatable the less savoury aspects of the Italian way, at least for an outsider. So in my mind I was always more of an observer, not feeling really in any way linked to the Italian way of being.
But in late 2014 that changed. Since 2008 Italy has been experiencing gut wrenching economic decline. A shocking amount of productive capital of every kind has been destroyed, or idled, or wasted. At the peak of the Euro crisis in 2011 Italy itself was calm but was politically in roiling turmoil as Berlusconi was deposed by the Italian President and replaced by unelected Mario Monti, who then presented himself to the electorate and lost the election so was replaced by Enrico Letta who although from the moderate left was supported by a type of coalition of left and right because the political establishment was fearful of what might happen if there were to be another election. In any case, Letta was effectively deposed by Matteo Renzi, Mayor of Florence, who has never been elected to parliament but who remains as Italy’s Prime Minister two years on. The subtext behind all this change was that Italy had reached the end of a road made up of statism, corporatism, populism, bureaucratism, gerontocracy, profligacy, irresponsibility not to mention out and out incompetence, corruption, rabid rent-seeking among others. It was felt in Italy that Germany was primarily pushing for a new broom and each Prime Minister after Berlusconi promised to be the key that would unlock the changes that would release the genius, creativity and dynamism of Italy such that Italy and the Italians would be the “locomotive” of Europe and be admired and respected the globe over.
The Italian response to the economic crisis was not to reduce spending but to increase taxes. The weight of taxes and social security contributions fall mainly on the private sector which found itself operating in an extremely challenging global and national environment while being bled ever more to sustain the “Italian system”. The Monti government did one thing, however, to partially balance out the generational favoritism that lets those who hold the vast majority of Italian wealth (the retired and elderly) avoid paying the vast majority of taxes. That is, under pressure from the EU, the Italian government finally applied a property tax to owners of land and buildings. In Italy the generation that holds the majority of land and homes is the generation born before and in the decade following the Second World War and the fact that such a tax would be extremely unpopular with that generation who are regular and diligent voters convinced numerous Italian governments to increase taxes on production, consumption, labour and virtually anything else one can think of but not land and homes!
If you have a business in Italy, like us, the system seems intolerable. You feel that it can’t go on. The Euro crisis showed that it couldn’t go on and the private sector was unified in thinking that maybe our time had finally come. That at a minimum, reforms to free up the economy would release us from a suffocating and stifling blanket of bureaucracy and regulation and that a rebalancing of taxes and social security payments would see the generation who have the wealth paying their fair share. Many of us felt that the pressure that Germany put on Italy to overhaul itself would bring Italy into the modern world and save us from a slow decline into relative and absolute poverty.
Well, it was not to be. The European Central Bank under its Italian Chief adopted the tried and true Italian approach to a speculative attack on an unsustainable currency, first promising to and then creating unlimited money. To this it added of buying back Italian government debt which has effectively mutualised it as it is effectively written off. So the pressure came off and the prospect of profound and necessary reform disappeared like a mirage in the desert.
Now this is not to say that Prime Minister Renzi does not seek reform. It seems very clear that he does. But absent a real and present pressure to reform he lacks an effective mandate to do it. As I wrote previously, Renzi has not been elected to the parliament so he is a lay-appointee running the government. In a democracy this is, in fact, a real problem but in Italy only someone who was not elected would have even a minimum chance of reforming bits of the country. Shortly after Renzi became Prime Minister there were European Parliamentary elections in which the party of which Renzi is a member did very well. Ex post facto, this was treated as a proxy election for Renzi himself and he thus gained a fig-leaf of legitimacy. Running with this legitimacy he began the first steps in a series of complicated and tortuous electoral, administrative and governmental reforms. Unfortunately, a series of regional and local administrative elections in 2015 saw a significant drop-off of support for the party of which Renzi is a member, especially in the cohorts of the retired and state employees while the ballots were effectively boycotted by younger voters. This has had the effect of making apparent just how limited Renzi’s mandate for change is and to get any change through he must be extremely careful not to alienate older voters and state employees.
Thus the property tax placed with such difficulty on first homes has now, in the latest budget, been removed as has the tax on agricultural land even if that land is not farmed by the owner and is held as an investment. Public spending has been reduced almost not at all and consequently the deficit is growing as is the Italian public debt which is expected to reach 133% of GDP.
So, when one has been witness to the decrepitude of Italy laid bare for all to see, its failure as a nation made obvious and the inability of its populace to work, to accept less and to strive for the common good illuminated by the hot light of economic insufficiency and yet these vices result in substantive retention of the status quo with the disasters to come pushed off, yet again, on the next generation, one knows, and we know, that when the Titanic goes down we won’t be in a lifeboat but will be sitting in a deck chair as the frigid water takes us.
So in summary, I realised watching this drama play out in Italy, that it was a drama in which I was intimately involved as is every business owner in the country. I was no longer a tourist having a great adventure in an ancient and sunny country but was running a business to pay for the lifestyle of those who took more than they produced, who stole barefaced and who had no hesitation thieving from subsequent generations and who used the democratic process to protect their privileges. As you might imagine, this realisation left me a speechless and so I lost the voice with which I wrote my blog.
Well now, that voice is back!