Why Italy Could Be the Epicenter of the Next Financial Crisis

https://www.nytimes.com/2018/10/12/business/italy-debt-crisis-eu-brussels.html

by jedwhite • 8 years ago

166 174 8 years ago

riffraff• 8 years ago

The proposed budget has exposed the seams in Italy’s governing coalition, where one party favors small-business-friendly tax cuts and the other enormously expensive welfare programs.

this has not really happened, the choice by the government has been: "let's do both tax cuts and expand welfare, finance it with debt, growth in the next few years will fix everything".

This is the worrisome bit, not that there is any widening seam in the government; the governing coalition is granitic until now, even in the face of things that the electoral body thought would never be compatibile.

cm2187• 8 years ago

God knows what will happen but there are a lot of small and not so small fires everywhere:

- Trade war

- Chinese growth faltering

- Chinese debt bubble

- Brazilian crisis

- Turkish crisis

- Italian populism / Italian debt

- US student loan bubble

- Real estate market slowing down in the US and the UK

- Brexit

- Over leveraged private companies because of the intense private equity deal making

- Tech companies reaching market saturation (internet access, smartphone or pc ownership, social medias, ecommerce), tech industry ceasing to be a high growth industry

I may forget some. Perhaps the next financial crisis will be the result of a combination of all of these rather than a single event (like the 2008 financial crisis was the result of a combination of a real estate market slowdown, a subprime debt bubble, and an over leveraged and complacent banking system, followed in 2011 by a sovereign debt crisis, of which Italy was already the most worrying elephant in the room).

novaRom• 8 years ago

- geopolitical tensions

- natural catastrophes

microtonal2• 8 years ago

Increasing tension between countries that reduce emissions of greenhouse gasses and developing countries that immediately undo the reduction with growth.

Growing immigration as a result of flooding and draught.

alecco7• 8 years ago

Small fires are a good thing. It usually makes the system prepare for the big ones.

The big problem in hyper-connected systems is feedback loops.

drdeadringer• 8 years ago

Small fires, yes. Small fires all together as OP describes may be the problem.

misja111• 8 years ago

Those are small fires, but there's a sleeping volcano as well which is fed by the historically low European interest rate. This is leading to inflated housing prices, company valuations and increasing private and corporate debts. The longer the ECB is keeping its interest rate at zero, the larger this bubble will become.

kazen444• 8 years ago

Also, we have the enourmous astroid coming towards us which is climate change and the ongoing inaptitude of politicians to actually tackle climate change.

All these problems will be neglible when have done to little to prevent a global temperature runoff.

anticensor• 8 years ago

Turkish crisis is caused by government corruption and extreme dependency on USD, not by ECB interest rates.

ironic_ali• 8 years ago

Rising interest rates will be a major, if not the major factor.

Emerging markets borrowing in $US means their payments increase exponentially with every point increase.

The euro is a shit show of debt and QE. Add rising rates and the house of cards shakes hard.

But, your points when added to that mix create a primordial soup of new paradigms...

ksec2• 8 years ago

There will definitely not be a single course for next recession. But one triggers another, Multiple bubble burst. Although I don't think we are quite near there yet, but it will make 2008 down fall looks like child play.

claydavisss2• 8 years ago

Since the removal of the gold standard we seem to be in a wave amplification patter - higher highs and lower lows. Our most recent bubble has been described as a "bubble in everything"...so one could expect the bust to also impact every financial asset class.

In this case, there are no hedges and people are motivated to be even more risk prone (since they are assured of being wiped out in any asset class in the next bust).

This I find particularly scary...the fatalistic present embrace of high risk given the inability to find a future safehaven (i.e. enjoy today since you're surely fked tomorrow)

The preppers might be on to something...

agumonkey• 8 years ago

2016 felt like a first wave, Europe resisted well, it seems the second one is coming .. surprise surpsrise.

Yizahi• 8 years ago

And russian metastasis all around it. Also Middle East and South China Sea.

raverbashing• 8 years ago

It certainly could cause a crisis

Or it could be the student loans bubble bursting. Or the deficit increasing tax cuts in the US

Nasrudith• 8 years ago

“We care about markets,” Mr. Di Maio said in a television interview last week. But faced with a choice between bond yields and the Italian people, he added, “I choose the Italian people.”

That demagogic rhetoric comes up commonly and it makes the same fundamental mistake or perhaps not wanting to understand that serving your creditors serves you as long as you need credit. The consequence for defaulting is not getting any more loans. Setting up an unsustainable system is setting up for a nasty fall.

Reminds me of some claiming that Greece being able to print the drachma would give them an easy out to their crisis. Even if they did it just plain wouldn't work last I heard Greece was still very dependent on imports for things like pharmaceuticals. Hyper-inflating their own currency relative to growth would not be a solution - it does nothing for the cost of imports which they depend upon and is worse than disease it is meant to cure. Less extreme inflation relative to economic growth could boost relative competitiveness of labor costs is their own slight advantage but even that would call for a decline in standard of living as a corollary.

Which brings to mind a thing about loans in general and fiscal wisdom - one should take out a loan only if it is an investment in some way - either generating more money or reducing long-term expenses in some way. It may in fact go bust but it has actual potential to pay for itself. The same seems like it would apply to countries and investments can also include some humanitarian purposes - a healthy and well educated workforce can generate more and is a case of everyone wins.

sgt1014• 8 years ago

Less extreme inflation relative to economic growth could boost relative competitiveness of labor costs is their own slight advantage but even that would call for a decline in standard of living as a corollary.

The question is do you focus on the "real" economy or the spreadsheet? If you are able to devalue and take the increase of import costs and generate competitive advantage by adding more value at a lower cost then the possibility is that your real economy will grow. More activity will create more actual wealth, which will help your fiscal position and restore standards of living over time. There are a lot of dependencies there, but there is a possible out.

On the other hand you can do what happened in Greece, stand behind the currency, slash spending. The problem is that this cuts the real economy without improving competitiveness. The Greek solution (and IMF standard) is to liberalise, sell assets and introduce more market activity into controlled sectors. The problem with this is that you have to actually do it and not just talk (Greece largely hasn't) and also while sometimes it has worked it seems that the precondition for it working has to be that the sectors in question are healthy and straining at the leash... which is not the case in crisis economies in general.

RobertoG6• 8 years ago

"[..] and also while sometimes it has worked [..]"

Can you give us some examples where this IMF standad solution has worked?

RobertoG6• 8 years ago

"[..] That demagogic rhetoric comes up commonly and it makes the same fundamental mistake or perhaps not wanting to understand that serving your creditors [..]"

Insisting that the path taken with Greece was the good decision is what looks like demagogic rhetoric to me:

-In a country of 10 million persons, half a million have immigrated (probably the young and with more studies).

-They had a fall of their economy bigger than the USA in the Great Depression, for longer.

-They had been (and are being) forced to sell assets that belong to all the Greeks.

-Their industrial capacity is in its way to disappear totally.

-Of course, the quality of life have fall and unemployment is very high.

-Their economy have been directed by foreign powers.

-All the previsions done from the IMF, EuroArea and company were totally wrong.

-Their public debt is the same, if not bigger, that when the crisis started.

So, my question: what have to happen for you understanding that the option taken was wrong?

choeger• 8 years ago

Counter question: what would have been the alternative? Default, exit €, and then all of the above but worse? I know that there are lots of people out there that think more debt is just the answer, but consider two things:

1. Your today's debt is other people's pension fund. So with what right shall a Greek pensioner retain her quality of life at the expense of a Dutch pensioner? 2. Exiting the Euro would undoubtedly shut down imports. At least for a while it would be effectively the same as cutting wages, savings, and pensions by some massive margin. Also the state would have no one to lend money from just after a default. Hence it would be forced into an even stronger austerity program.

cinquemb2• 8 years ago

That demagogic rhetoric comes up commonly and it makes the same fundamental mistake or perhaps not wanting to understand that serving your creditors serves you as long as you need credit. The consequence for defaulting is not getting any more loans.

Yeah, idk. How many times has Argentina defaulted in the past 100 years? How many times has the IMF swooped in for that basket case and others like it?

All this means is that their yields will go up, and make it super attractive vs holding stocks, esp if you can lock in fx rates with forwards contracts on the EURUSD.

tonyedgecombe3• 8 years ago

All this means is that their yields will go up

This isn't a small thing for Argentina.

Al-Khwarizmi• 8 years ago

The rethoric you cite is indeed somewhat demagogic, but the idea that "the consequence for defaulting is not getting any more loans" is disingenous.

Most countries in the world have had sovereign defaults, often several times throughout their history. See, for example, the map at https://katapult-magazin.de/en/artikel/artikel/fulltext/ston...

Spain defaulted 9 times, Portugal and Greece 6 times, Germany 5 times, the UK 4 times. They still get loans now.

gebruikersnaam• 8 years ago

Spain defaulted 9 times

This was all before 1900 though, things have changed quite a bit since then.

kazen444• 8 years ago

Also, most of these nations defaulted because of vast political and societal changes. (russia has defaulted many times on it's debt thanks to the soviet revolutions and dissolution of the USSR for example).

Wicher• 8 years ago

The (most likely German) authors of that map forgot about the existence of their neighbours to the West - the Netherlands are a blank void, same color as the North Sea.

Tsubasachan2• 8 years ago

Italy is banking on the welfare Northern Europe is giving them. Not unlike how California and New York pay for the US.

If Italy can't lend money they are finished and they know it. Politicians don't believe their own words.

acifani• 8 years ago

What welfare are you talking about? Italy has been a net payer [0] in EU contributions from since I could remember

[0] https://www.cbs.nl/en-gb/news/2016/50/netherlands-largest-ne...

kome3• 8 years ago

You are factually wrong.

mexicanandre2• 8 years ago

Having spent the last two months the in Italy it’s really sad to see what it is like. Some parts are beautiful but other parts are filthy and feel thirdworld like. I don’t understand how the worlds 10th largest economy is so dirty in such a poor state

cedivad4• 8 years ago

10th largest? Last I checked we were the 7th and that was just a few years back. Go back another couple of decades and for a brief moment we held 4th place just after Germany. I believe this decline explains most of what you are seeing.

lapnitnelav• 8 years ago

Yeah but how do you explain the decline?

Do the systemic problems that have always existed getting worse? New ones?

danmaz742• 8 years ago

Let's not forget that the 5th place we briefly held was financed by the enormous unproductive deficit spending which is the root cause of our last 20 years of almost-no-growth. That was just growth on drugs, spending the future earnings of young and not-yet-born Italians to satisfy the greediness of voters at that time.

isostatic2• 8 years ago

In 1999 Italy was 7th, in 2017 it was 9th (world bank placing)

India and Brazil overtook it thanks to massive growth. That's not a problem for Italy directly. The US has changed from 29% of the world economy to 24% over the same period.

Relative numbers are slightly more concerning though.

Since 1999, Italy's gone from 3.8% of the economy to 2.3%, a much larger drop than the U.S.

In 1999 Italy's GDP was 56% that of Germany. In 2017 it was 52%. France moves 81% to 75% US moved from 13% to 10%

Italy was 96% larger than Spain in 1999, now it's only 48%. It was 81% larger than Canada, now it's only 17%.

sticazzi2• 8 years ago

Where are you from?

kamaal4• 8 years ago

>Some parts are beautiful but other parts are filthy and feel thirdworld like.

That's like the very definition of inequality.

Why are you so surprised?

DrNuke• 8 years ago

The EU is not working for people as it worked for peace and banks. There is nothing shameful in that, the process is difficult and has so many enemies within and outside Europe. Italy often acts as a politics lab, let’s see what happens in May 2019 with the general European election in the EU.

mexicanandre2• 8 years ago

I think Italy’s issues are more to do with its government and corruption than the EU. The EU seems to be working for a lot of the other countries just fine economically.

microtonal2• 8 years ago

Despite the shortcomings of the EU, national politicians are also using the EU for shifting the blame of their own failings. In the longer term, this undermines trust in the EU and gives rise to populism.

That’s not to say that people who vote populist don’t have a point. It’s hard to understand why companies are making billions in profits, while people are scrambling to make ends meet.

alecco7• 8 years ago

The EU lured all the Mediterranean countries with sudden cheap credit and currency stability. But they didn't think of the consequences. Too cheap credit brings inefficiency and breeds corruption.

There was a reason those countries had bad rates before joining. And most of the causes of those issues were swept under the rug. Now who is going to pay for the consequences?

RobertoG6• 8 years ago

"The EU seems to be working for a lot of the other countries just fine economically."

I assume you mean the Euro here (not the EU)

What are those countries?

RobertoG6• 8 years ago

The European Union works reasonably well, the problem is with the Euro.

Not currency union can work properly without a fiscal union.

TheOtherHobbes• 8 years ago

The EU is still mostly a good thing.

The Euro is a disaster - swivel-eyed lunatic neoliberal orthodoxy enforced by a common currency.

The irony is that the so-called single market is a mess too. While it's possible to sell across country borders in the EU, the bureaucratic necessities - especially VAT accounting - make it a horror show. Eliminating customs bureaucracy is a good thing, but that's still a long way short of true friction-free trade.

alecco7• 8 years ago

The EU is overgrown from mild benevolent rules unifying member countries on similar traits to a massive body of law and power that nobody knows.

I used to be quite against Brexit but after seeing on of the videos on the EU I am now skeptical. There are 3 big voting bodies: EU Council, EU Parliament, and EU comission. The majority of people don't know the difference and nobody knows the people in there. In the last decade they started micro-managing everything in the EU. Think of gdpr and the new copyright rules. It's starting to resemble a big authoritarian state.

Also they apply uniformly the same strategy for countries like Germany/Austria/Netherlands and Greece/Portugal/Italy when they are in very different situations. The former are quite happy with the arrangement, the latter are trapped in a death spiral.

pavlov2• 8 years ago

”There are 3 big voting bodies: EU Council, EU Parliament, and EU comission. The majority of people don't know the difference and nobody knows the people in there.”

As a pro-Brexit argument, this seems weak. I think most people can’t explain the difference between the House of Commons, the House of Lords and the Cabinet either.

The EU structure really isn’t that complex when you remember that its power is granted by the member states, so the highest authority is an oversight body consisting of each country’s elected governments — that’s the EU council. The Commission is the executive branch and the Parliament is legislative. That’s it.

craigsmansion4• 8 years ago

after seeing on of the videos on the EU I am now skeptical

The EU is almost desperately transparent: http://europa.eu/

There are 3 big voting bodies: EU Council, EU Parliament, and EU comission.

The Council are the elected heads of state of EU members. They decide on the course.

The EU commission is tasked with implementing that course, and producing legislation.

The EU parliament is tasked with correcting that legislation. Although they have little legislative power, they can dissolve the commission. In the grand scheme of things, the buck stops with them. They are elected directly by EU citizens.

they started micro-managing everything in the EU.

The EU takes care of the things almost all members agree on (remember, the Council sets the course). They don't get to be involved in high-coverage contentious politics.

Think of gdpr

Yes, a highly popular measure inside Europe, even by tech people who are affected by it.

It's starting to resemble a big authoritarian state.

Yes, they will force members to do their bidding with fish-quota, clean beaches, and humane labour conditions.

The EU structure is a little complicated, but it's 400 million citizens we're talking about. Its powers are very limited and is derived from 27 countries wanting to interact to try and set a course that benefits everyone, instead of individual countries racing each other to the bottom with disastrous results.

quonn2• 8 years ago

This is simply not true. I know the MPs that I voted for as well as the leaders of the major blocks and those who regularly talk. I sure know who is the german member of the commission as well as the president. And I know the president of the council. This is comparable to what I know about national politics as well. I don‘t know most MPs and can‘t name all ministers. For most of my friends it is the same.

Furthermore if people wouldn‘t know that explains very little about the EU.

kamaal4• 8 years ago

>The EU is overgrown from mild benevolent rules unifying member countries on similar traits to a massive body of law and power that nobody knows.

I'm not an US citizen. But one of things that Donald Trump said repeatedly during his campaign speeches, was that globalization largely looked like a unelected bureaucracy running the world economic affairs at their whim without accountability.

Transfer of jobs, factories and even small business based on economic centers en-masse across countries.

AllegedAlec4• 8 years ago

We should kick them, an all other questionable economies, out of the Euro, to tbe frank.

craigsmansion4• 8 years ago

But what problem would that solve?

Of course it's easy to say "It's their own fault, let them stew in their misery", but that doesn't enhance stability.

The EU isn't about making everybody rich, but it is about preventing poverty to such a degree that people en masse would start to panic vote for the first strongman who promises to fix everything.

If your solution is the same as the anti-EU politicians from a country ("We should revert to sovereign currency so we can print our way to wealth") it's likely not the best solution for the long term interest of the bloc.

AllegedAlec4• 8 years ago

Of course it's easy to say "It's their own fault, let them stew in their misery", but that doesn't enhance stability.

Neither does having a country have their economy fail every few years.

alecco7• 8 years ago

There can be a middle ground. Keep the basics of a trading block and other small but essential concepts. But let them be adults and manage their debt and currency. Currently their populist government doesn't care about yields because pappa EU will guarantee that debt, like they did with Greece. They even own a good chunk of it!

AllegedAlec4• 8 years ago

That's why I said 'euro', not 'EU'.

cedivad4• 8 years ago

Let me guess, you are german. Trading deficit parity when? Or laws you signed don't apply to you?

AllegedAlec4• 8 years ago

Let me guess, you are german

Swing and a miss.

xn1111• 8 years ago

Many Germans would be happy to leave the EU or at least the Euro if the German presence is such a burden to other countries.

The Euro benefits the 1%, but not the "common" (i.e. actually working) population.

LoSboccacc• 8 years ago

here's a better analysis https://www.ineteconomics.org/perspectives/blog/why-hysteria...

this is the usual monthly forecast that gets dropped in the hope that, maybe this time, it'll be true. we had the italy, france, greece, chinese, spanish, portoguese, greece again articles in the last six or so month.

at some point people should realize there's a pattern of just yelling loom hoping it sticks and that most of those "articles" when their forecasts are tested are worse than a coin toss, because their core goal is bringing views, not being accurate.

nkjoep2• 8 years ago

I just think politics has never generated employment.

Organization and the real economy do.

I think planning more debt is a mistake, especially when they have a clear (or smart) way to spend it. (see corruption, mafia, bureaucracy etc...)

alanfranzoni3• 8 years ago

I think that what the last financial crisis shown us is that "too big too fail" is the way to go. If you're big enough, you'll be saved and forgiven, because your fall could create too many problems.

This government, with all its shortcomings, is the first in some decades that tries to put italian people first, rather than finance, the euro, or banks.

That said, the bet is risky. Salvini started his activities by showing how the EU is inept at solving the issue with immigrants from Africa and Middle East (eu countries could not agree on an eu-wide solution, leaving border states to deal with it).

Now the government wants to transfer that ineptitude feeling to the economy.

Is Italy actually too big to fail? We'll see.

Disclaimer: I'm italian.

siscia2• 8 years ago

This government, with all its shortcomings, is the first in some decades that tries to put italian people first, rather than finance, the euro, or banks.

Sorry, but this is just false.

In which way they are trying to put the italian people first? The abolition of Fornero (pension reform) will not solve any issue but will only cause more problem down the road, similarly for the re-branding of the "unemployment benefits" into "citizenship income".

I am afraid that Italy is both too big to fail but also too big to be saved.

IloveHN84• 8 years ago

And what do you suggest?

alanfranzoni3• 8 years ago

In which way they are trying to put the italian people first?

I'm not saying they are succeeding. I'm saying they're trying.

The abolition of Fornero (pension reform) will not solve any issue but will only cause more problem down the road

It will solve the problem for people who are, right now, too old to stay at work. At least they're not saving pointless banks, aren't they? But, sure, it could be even worse for young people.

re-branding of the "unemployment benefits" into "citizenship income".

Universal Basic Income is deemed necessary even by people like Elon Musk, do you know that? Sure, citizenship income won't work the same way. It's quite small in comparison with UBW.

What I agree is that, probably, Italy, like other countries, would need totally different and more drastic measures. It's hard to change things in a country where retired people earn large sums of money that they don't deserve (because they haven't saved for that).

But, I don't trust the markets, the finance sector or the economic system to change that; those "tools" are used by people who just want to extract the maximum rent, and they'll always use them to achieve that: extract the maximum rent. Unless we start aiming at a different target, which could be "a fair distribution of basic wealth and income", we won't reach a different outcome.

All of that, IMHO.

krona2• 8 years ago

I am afraid that Italy is both too big to fail but also too big to be saved.

You mean the French and German banks and pension funds are too big to be saved? The Italian banks will be insolvent as soon as anything substantial happens, as was shown 3 years ago. The only reason to 'bail them out' would be to bail out forign banks, as was the case in Greece.

Having the perma-surplus countries of Europe enforce austerity and permanent contractionary policies on sovereign countries that share a currency (The Fiscal Compact) is an impossible combination, which we also know because we've tried it many times before.

craigsmansion4• 8 years ago

Doesn't this false dichotomy between "the Italian people" and "Financial institutions" bother you?

Salvini started his activities by showing how the EU is inept at solving the issue with immigrants

Yes, an intercontinental large problem caused by poverty and wars could not be quickly solved by an institution that couldn't get a mandate to handle it.

solving the issue with immigrants

Doesn't this bother you even more? I mean, there does exist an "easy fix" for the hard problem of immigration, but that doesn't transfer to having an easy fix available for all the other hard problems that any country will need to navigate.

alanfranzoni3• 8 years ago

Doesn't this false dichotomy between "the Italian people" and "Financial institutions" bother you?

If I thought it to be a false dichotomy, probably. But (I can't find the link right now as I'm in hurry) as far as I remember when some italian banks were saved some years ago, something like the 80% of the amount of non-performing loans for such bank was composed of loans of 1 million euros or more. So, money that was borrowed by large companies or for very large houses (Yes, one million EUR is a luxury apartment or house in Italy, even in Milan or Rome). A lot of issues for financial institutions were not caused by small companies or "normal" people, and yet those are to bear the burden of saving those institutions.

solving the issue with immigrants Doesn't this bother you even more?

I'm not saying it's correct. But this is a game they're playing.

As others have said, i think the EU by itself is interesting and should go on, but the euro seems an half-baked project. I think that each country should walk its way and have its liabilities. European countries are quite different from each others and would like to solve their problems in a different fashion, rather than following a path chosen by others.

My 2c.

hiiq2• 8 years ago

Actually, immigration has a simple solution.

As the Australians have shown: if you have the testicular fortitude to house illegal immigrants on desolate islands where they are safe from the oppression and starvation they claim to be fleeing, then very, very soon the flow dindles to a trickle.

Since most of the country-shoppers aren't real refugees - they just wanted to live in Sydney with an Australian passport and a hard currency.

The same applies in Europe.

JohnStrangeII• 8 years ago

If Italy falls, it would drag the EU with it. At the same time, Italy is too big to be kept alive with financial aids from the EU.

So the answer is No:

1.) Italy is not too big to fall. A state bankruptcy of Italy is possible. It would occur if e.g. another external crisis hits the EU.

2.) The EU would do anything in their power to prevent that, but in a real emergency it couldn't do much. Italy would have to be excluded from the Eurozone and default.

None of this is likely to happen, though.

As for the Italian government, it's just another proof of the fact that modern Western, Christian, humanist values are mostly a lip service and given up at the earliest sign of causing inconvenience. We already know from the war in former Yugoslavia how fragile modern culture is. We're basically just a bunch of stupid monkeys, and that definitely includes the Italian government. :(

simonh• 8 years ago

Populism is always hard to define, but for me it’s largely about treating symptoms directly without treating causes.

Socialism, communism, conservatism, liberalism, all the established political movements have a theory or philosophy of what goals they want to achieve, yes, but also what means they can use to achieve them. They have an economic or social theory.

Populism doesn’t, so all it tries to do is address the symptoms, not the causes. People are poor, let’s give them money. Problem solved! Foreign goods are cheaper than ours, let’s slap an import tax on them to make them more expensive. Problem solved!

The trouble is the reasons why people are trapped in poverty, or why local manufacturing isn’t competitive are not addressed, and populist tactics make those causes much harder to tackle.

The Italian governments policies will, if carried through, impoverish Italy for a generation. Just look at Greece to see what massive debt driven overspending can do to a country. The idea that growth will lift you out of the hole is a fantasy because the factors holding down growth aren’t being faced.

XorNot• 8 years ago

Populism is an appeal to popular opinion without contributing any leadership IMO - i.e. you basically just send the broadest possible opinions of the population back at them, without attempting to shape or direct them into actionable strategies.

It always looks simplistic, because it is - there's no attempt to capture a defined, practical policy, just do whatever people will in general like as a sentiment.

telchar• 8 years ago

Populism is just the antipode to elitism. Too much elitism (e.g. pre-revolution France, gilded-age America or any kleptocracy of which there are numerous examples) is problematic too. A dose of populism can be a useful solution to that problem. For example, the New Deal seems to have worked out pretty well.

Just like anything else, populist policies need to be considered carefully and applied judiciously to work out well. To hold that all populist policies are simply to give out free money is a straw man argument.

A knee jerk response to any populist policy is a low-effort way to implicitly support elitist systems. These policies should at least be fairly considered on their own merits in the context of the actual economic system.

I'm not making an argument for any specific policy here, but I've seen far too many policy proposals waved away as "populist" and therefore not serious.

0xferruccio2• 8 years ago

I’m a 21 year old italian from Milan studying my last year of engineering and can’t see a future for myself in this country.

As soon as I finish my degree I’ll move somewhere else, most of my friends (that attend the best universities in the country) want to do the same. The only reason most of us stayed here for uni are the incredibly high quality universities that are super cheap.

Here are some of the problems we face in my point of view: https://ferrucc.io/italy-s-problems/

Theodores5• 8 years ago

Given how super fast your website is I think that you have a bright future in Italy helping businesses get their online presence up to speed.

I checked the Chrome dev tools 'Audit' for your site and I have not seen another website that ranks so highly for performance. Not hard when you just have a simple blog, but the rest of the world is struggling with this.

user5994461• 8 years ago

A single page with no pictures, no analytics and no ads. Of course it loads fast but sadly it has no business value.

No business wants a site with no picture where they can't monitor what people where looking at.

ksec2• 8 years ago

The pension system is a Ponzi Scheme

I am now starting to discover not only pension, but lots and lots of financial systems and scheme, are not sustainable. Including what ever currency system we have in place.

beerlord2• 8 years ago

The money we spend on the elderly is absolutely unsustainable - welfare and healthcare.

The taxes in Europe are insane - huge social security taxes (before you even get your paycheque) and sales taxes.

Yes, healthcare and education is paid for. But if you are middle-class, the extra taxes you will pay in Europe will far outweigh the gains your receive from that (compared to America - where you pay less in taxes, but have to pay for your own college education and healthcare).

Its unsurprising that Europeans have such low birthrates. The cost of living is mostly the same as the US, but the salaries are much lower/taxes are much higher.

This whole system needs to be unwound, and more money put into the hands of workers. If it means people no longer get a state pension, then so be it.

ff_• 8 years ago

I'm you but 6 years later :)

I actually dropped out of Poli and moved to Helsinki, and most of my friends scattered around Europe.

Did you see this thread? https://news.ycombinator.com/item?id=18045294

Your post has a nice collection of issues, IMO there is one missing: there is absolutely zero interest in investing in research and technology (e.g. afaik there is still no fast internet outside of big cities) and young generations (this is related to the aging population, that makes it convenient for politicians to target retired people to get their votes. Convenient for them in the short term, but not as much for the future of the country)

0xferruccio2• 8 years ago

Awesome to see other people from polimi :) Thanks for sharing that thread!

sticazzi2• 8 years ago

If Italy is not good for you, then no other place will be good for you.

Bombthecat• 8 years ago

Yesterday one of my friends said that the EU won't be anymore around 2040, 2050.

Sadly i was too drunk to ask why.

I don't think it would be the usual answer. Like credit, debt, economic fail etc.

He is a professor in cluster economics ( no idea how to translate that) basically he researched development of states, cities and clusters around certain thinks like how a city develops around a river or sea or what happens around a coal mine or easy cheap internet access (his last research)

So I kinda wonder now, why he thinks the EU won't exist after 2040/ 50..

TomMarius• 8 years ago

Please do ask him!

timwaagh• 8 years ago

I dont think the EU will want to sanction Italy over a budget that is, all things considered, within the usual 3% deficit limit. They are already in enough trouble picking more important fights with Poland and Hungary who have downgraded their democracies.

hal9000xp2• 8 years ago

I watched EU debt crisis since 2012. In 2015, I watched this animation about EU debt crisis on Bloomberg:

https://www.youtube.com/watch?v=j4_tyEl84IQ

Since 2016, I spoke with many greeks, spanish and it looks to me that vast majority of them believe in wrong things. Therefore they will continue to vote for left or right populists no matter what. Their left and right are anti free market, anti fiscal conservatism, pro spending, pro welfare, against businesses.

In very long term, EU is unsustainable. Too many countries with different interests and huge moral hazard.

toyg6• 8 years ago

Since 2001, I spoke with many Americans and they believe in wrong things. Therefore they will continue to vote for left or right populists no matter what. Their left and right are warmongers, anti-internationalists, anti-peace in the Middle East, anti-immigration, anti-poor people, against universal access to medicine.

In very long term, US is unsustainable. Too many states with different interests and huge moral hazard.

(Of course, I don't really believe this; I'm just showing you how your populistic generalizations can be equally applied to any federal state on the planet. Please try to see beyond the propaganda you are subjected to.)

hal9000xp2• 8 years ago

Usually, people who trade smarter than those who vote. So stock market is constant voting machine for expected future earnings, it's fair to say that indexes provide pretty accurate overview of economy.

With that in mind, if you look at SPY (US) and compare it with EWI (Italy) and EWP (Spain), you will see that Italy and Spain are not going anywhere since 2008 and US at that time made huge progress.

https://www.marketwatch.com/investing/fund/spy

https://www.marketwatch.com/investing/fund/ewi

https://www.marketwatch.com/investing/fund/ewp

Now, take a look at GDP of US:

https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&...

And compare it with sad picture of Italy and Spain and Greece:

https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&...

US has populists but their debt denominated in their own currency and on top of that US economy is very diverse and strong. US is much more business friendly than Italy, Spain and Greece. And their debt denominated in currency they can't print.

If you are anti-business and pro-welfare, then your business won't flourish and at the same time you will accumulate huge debt.

revel• 8 years ago

What is not discussed in this article is the staggering amount of Italian debt the German government is exposed to as a legacy from the 2008 financial crisis. An Italian default would be like an atom bomb going off in European markets and the ECB no longer has the means to do much to stop it.

Post 2008, the ECB forced a lot of unpopular economic restructuring measures, but it never forced bondholders to take the large haircuts necessary to allow the countries to properly delever. Instead the solution was more debt at favorable rates and forced adoption of contractionary fiscal policy. The result is that you have countries like Greece and Italy that were crushed under a wave of austerity and slowly ballooning debt whose economies never really recovered because of the toxic combination.

Germany was largely acting out of self-interest when it provided the financing the countries were asking for so now German banks were terribly exposed to all that debt. The German bailout of European nations moved bank exposure to the German taxpayer. There's some lingering resentment amongst the German public about propping up the Greeks, in particular, but they ain't seen nothin' yet! The next financial crisis doesn't even have to start in Italy in order to trigger the Italian debt bomb and wreck the European economy. A no-deal Brexit could do it. A sharp drop in the American economy could do it. All of this is to say that we've been crossing a shaky rope bridge across two mountains for quite some time and I'm not sure that we'll get to the other side. Happy Sunday everyone!

atq2119• 8 years ago

and the ECB no longer has the means to do much to stop it

This is incorrect. The ECB is the emitter of Euros. They run the whole system, so they always have the option to buy government bonds, for example.

Now, whether the politics will allow that to happen is not necessarily obvious. But that's a separate question, let's not get confused about that.

krona2• 8 years ago

The ECB is the emitter of Euros. They run the whole system, so they always have the option to buy government bonds, for example.

There is a 33% limit imposed on the total amount of any country’s public sector debt that can be held by the ECB.

Now what you're saying is not just that the limit be increased but also that the ECB only buys Italian bonds, creating a moral hazard arguably as bad as any other outcome.

JumpCrisscross3• 8 years ago

they always have the option to buy government bonds

The ECB is uniquely restricted, compared with other central banks, by "Maastricht treaty provisions that prohibit the ECB from financing member states" [1]. (These limits are "in terms of proportion of overall public debt (33 per cent) and of each country’s specific debt issue (33 per cent).")

[1] https://www.ft.com/content/8c3ea45c-acd5-11e7-beba-5521c713a...

JumpCrisscross3• 8 years ago

It's useful to contrast the effect of an Italian default on the European economy to e.g. Illinois defaulting on the American economy. The former is an existential crisis. The latter a bad day.

Europe's sensitivity to member states defaulting comes from its lack of an EU-wide deposit insurance scheme [1]. There was an opportunity to do this after the Greek crisis. But Germany's undercapitalized regional banks opposed the measure. (With centralized insurance comes centralized supervision.)

So when Italy's €2.4 trillion debt [2] implodes, it isn't shouldered by the EU's $18.8 trillion production base [3]. It wipes out every Italian bank. Which wipes out the Italian deposit insurance scheme. Which sends the pain straight to Italian pocketbooks, and through it, consumption. Meanwhile, French banks only get to rely on France's €2.3 trillion economy; German banks on Germany's €3.3 trillion economy; Malta's banks on Malta's €11 billion economy.

The last crisis could be called a growing pain. This next one will be the result of a broken political institution.

[1] https://global.handelsblatt.com/opinion/german-banks-must-op...

[2] https://www.nationaldebtclocks.org/debtclock/italy

[3] https://en.wikipedia.org/wiki/Economy_of_the_European_Union

repolfx3• 8 years ago

That's a very federalist viewpoint. Many Germans would undoubtably view it as a working political institution - that is, they don't want to have to bail out the Italians, they never agreed to that, and in fact insisted on budget clauses and agreements in various treaties (which they then themselves violated but in the 'right' direction, but even so).

For your view to be correct everyone has to be totally on board with perma-bailouts of profligate states. They are not.

fibo2• 8 years ago

This is exagerated propaganda. Italy will do it well.

fibo2• 8 years ago

Those articles usually claim also that Italy is full of racism, I leave in Italy and that is completely wrong. Media play with information and can happen that media spread wrong information.

apexalpha• 8 years ago

I love how, left or right, it always ends up being someones fault. Except Italy.

Same story as every thread discussing Greece.

nkjoep2• 8 years ago

I couldn't agree more.

I am Italian and I think it is only Italian bad administration's fault.

All bad choices taken in the last 20 years are showing their effect now.

Why Italy Could Be the Epicenter of the Next Financial Crisis

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