Do not ask for whom the bell tolls. The bell tolls for thee.
If there is reckoning or an awakening, it seems to be long in coming. When it does, it will be later than needed to save what is left of the 'beautiful country.'
A country that was the most desired place of vacation for artists and poets for centuries is now in the grips of a persistent and malicious economic decline.
For decades, Italy subsisted of large handouts. It had, in short, gotten used to foreign aid and financing. It also had gotten very used to bad economics. Blessed with a strong industrial sector, and an equally rich and diverse artisan production, the country had been able to float along, if not hobble a bit, for decades.
A country with a labyrinthine bureaucracy, where many of the richest people skirt the law, both fiscal and civil, is now in dire need of funds. But those funds have already evaporated.
Almost a trillion dollars have vanished from the country's revenues from tax evasion. Graft, corruption, scandals, too many civil servants and political parties, extraordinary privileges to politicians and their subordinates that cost the state billions, and not least nor last, the long hand of the mafia, have all but depleted the country of any ability to rise from its knees. If it is a death, it is one that will be slow, under the eyes of everyone.
To add to the woes of the place, are also inefficiencies that have existed for decades, and a social burden that is growing larger with each immigrant that lands on its shores.
As Letta, its interim Prime MInister, struggles to put a brave face on his economic program, the economy is slowing coming to a halt. With the financial sector squeezed to the limit, there are no funds for small businesses to keep afloat. Hundreds of small businesses are closing each month. Thousands of people join the already swollen unemployment lines.
Just today, Letta announced the most aggressive fiscal crackdown to date. But who will be the target of such crackdown? Most of the richest and smartest people have already taken their money out long ago. So the new victims of the fiscal austerity will be the small businesses, the corner grocery store, and the middle class. That cost, by the way, will be passed along to the consumer.
For decades, businesses in Italy have survived the almost 45-50% revenue tax burden by skirting taxes. The only way to make a profit, they claimed was not to provide the client with the famous 'receipt', the proof of payment.
Unfortunately, the previous Prime Minister, Silvio Berlusconi, had taken another tack. Taking a page out of the Republican book of economics, a party he sought to emulate, for nothing else to help himself and his heirs avoid costly real estate and succession taxes, the wily Prime MInister had abolished both, or at least part of both. But when he did that, he did it in a country where tax evasion is proof of intelligence and know how. No one, Italians used to say, pay taxes, only fools. A country where there was already an haemorrhage of funds due to tax evasion on income and revenue, had no business taking out both real estate taxes and succession taxes.
The hole created by the Berlusconi years have exacerbated the already crippling percentage between the country's GDP and its tax burden. Just recently accusation were flying that Italy's politicians and bankers had colluded in converting some of their debt into longer term, and much riskier derivatives,o 'shrink' the debt burden just in time to qualify for the Euro Zone inclusion in 1998.
That said, and it's a mouthful, what is Italy to do?
The truth is there are not many choices. Most countries in deep economic distress depend on some kind of stimulus from the government to kick start the economy. But to do that, the country needs to inject money into the system, in some form of initiative or another. And that is one thing Italy does not have : money.
A famous Italian economist has compared the present situation as being worse than the devastating crisis that hit the country between 1929 and 1934.
Growth is now at a gasping -1.3%. The Bank of Italy furthermore, is forecasting a contraction of 1.9%.
Negative growth by definition, if sustained, is the very definition of an economic depression.
Another 'black sheep' of the Italian economy is the fact that its once powerful industrial sector has shrunk considerably. 15% of the country's industry has vaporized. In some sectors, as in the automotive industry, that percentage is 40%.
The reason for this is that Italian manufacturers rely on element production overseas, chiefly in Asia, Turkey and Poland. Many of the factories in Italy are merely assembly plants.
One of the wealthiest mini-communities in Italy used to be the industrial zone around the quaint city of Fabriano, where a great number of appliances and furniture was produced, much of it for export. Now the city is in dire straits. The biggest industry, Indesit, once a factory with almost 10,000 workers, is down to 2,500. That number will be halved by year's end, according to a new announcement by the company.
Many cite the high wages. That's actually wrong. Italian wages are 15% those of their wealthier neighbors. What the problem really is, is the enormous tax burden. Unit labor costs are 30% higher than in Germany, its wealthiest neighbor.
Banks have all but shut the spigot. What is worse, state and government offices are not paying their bills. There are a good numbers of people who have retired recently who have not received their pensions for more than a year past the date in which they would have automatically come due.
More than 8 million Italians are now living below the poverty line. That's almost 20% of the population. Many companies are also unable to meet payroll, and must dole out paychecks in installments.
Monti, an experts in economics, whose plan was supposed to lift Italy out of the quagmire it finds itself in, failed in part, although some of the measures did slow down the freefall Italy was in at the time. But these measures are not nearly enough.
To cap it all, the parliament is engaged in an almost year long game of Roman chairs. That kind of chaos spooks willing investors. Paralysis in the political arena translates to paralysis in the economic arena. The judiciary is, as some say, out to lunch. Some trials last decades, all but ending long after the crime falls outside the limits of the period of prescription.
The OECD, the Organization for Economic Cooperation and Development has among other suggestions, advised to reduce government spending, instead of constantly raising taxes, which are now at draconian levels. An additional increase of the sales tax is also being bandied about. The current sales tax fluctuates between 20% and 36% depending on the item bought.
The greatest affliction that afflicts Italy however, is the so called "casta", a large number of corrupt, entitled and ideologically selfish and pig headed politicians who are unwilling to compromise and who are receiving incredible salaries, some of which are only part of their income, since many of them hold other offices or occupations. More than 800 members of Parliament receive almost 400,000 in salary yearly, more than the President of the United States, which do not include the incredible array of privileges, discounts, perks, and other expensive extras that define their office.
The
country is destined for bankruptcy and quite soon, unless drastic
measures are taken. That measure, without a doubt, will have to be in
the form of aid or handout. Many fear that that is exactly the worse
thing Italy could do, because it would reinforce the notion that no
matter what its misconduct is, someone will always come to the rescue. That measure, a bailout, could shake the very foundations of the EU, since it would be the largest awarded yet. And that too might not happen, since a bailout would imply disclosure. Without such rescue however, Italy has almost no chance to save itself.
Unless......
The country, says Allen Sinai, a US economist, has great vitality and potential, but the only true solution to its imminent economic disaster is to exit the Euro.
Partial Source :Spiegel Online/ 7.24.13
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