It’s a grim Monday morning here in Milan, Italy. Matching the grim weather is Italy’s news.
Italy’s under 35s are having terrible problems finding jobs. Businesses are shutting down right, left and centre. Consumption is falling, and prices, including fuel costs, are rising. Fewer Italians are buying new cars. The property market is suffering and the banks are highly reluctant to do much lending. Taxes, as ever in Italy, are crippling. Red tape continues to tie everyone in knots. Corruption and organised crime continue to hang over Italy like a huge dark shadow. As Rome based reader Terry quite rightly pointed out in his comment, also hindering Italy’s growth is clientelism which is another massive problem for Italy.
Then there is the warped way in which business is conducted in Italy. Here is but one example of many from the Wall Street Journal: Deal Making, Italian Style, which illustrates how clientelism works.
The Old Guard is Winning
The Mario Monti led government appears to be having huge problems removing the vice like grip of Italy’s super-clique, the “salotto buono” and all the other odd little cliques, from Italy’s innards. As a consequence, few constructive reforms are being pushed through Italy’s eternally bickering clientelism-ridden parliament.
The reforms so far, if that’s what they can be called, seem to be pushing the cost of living up to stratospheric levels. About the only ray of light on the horizon for Italy is that more teachers are to be taken on, maybe. While education is one answer to Italy’s woes, its effects will not be immediate. Nor is there any guarantee that the quality of education in Italy will improve simply because there are more teachers.
As for attempting to sort out Italy’s flawed political system, forget it. Monti is going nowhere fast on that front.
Growth: Mission Impossible?
Now, Monti and his team of technocrats are turning their efforts to the subject of growth. The trouble is, Italy is rather short of cash, so finding the resources needed to stimulate growth is not going to prove easy. Indeed, it may prove impossible.
Monti would like to encourage foreign businesses to invest in Italy, but taxes which are some of the highest in the world, combined with a snails pace slow legal system, corruption, and employment legislation which does not permit businesses to adapt to market conditions, all add up to make Italy a very unappetizing proposition for any foreign investor. In actual fact, Italy has been a wholly unappetizing proposition for foreign investors for many a year.
A few quick calculations will convince investors to look elsewhere – to nations where employees are not cosseted by an over-protective system and its odd Article 18 provision that stifles Italy, for example. Austria does not have an Article 18, so investors may head there.
In Italy when the market shrinks, businesses do not downsize to weather the economic storm, they simply close. Many more people than need to be end up unemployed as a result. Such is the, defective, Italian way.
Italy Cannot Afford Tax Cuts
Tax cuts are being talked about, but the truth is, Italy cannot afford to lower taxes, at least not until the nation’s huge public debt has been brought under control.
An attempt to tax fizzy drinks, probably with the intention of using the income to lower direct taxes, fizzled out. Italy’s fizzy drinks makers pointed out that the proposed tax was likely to do more harm than good and lead to a loss of jobs.
Indirect taxes will only work for Italy if direct taxes are cut. But before the direct taxes can be cut, complex calculations need to be performed to assess the costs and benefits. In the case of the fizzy drinks debacle, it sounds very much as if someone either messed up the calculations, or did not do them properly. So much for technocrat expertise.
Catch 22?
To bring down Italy’s public debt, the economy needs to achieve an annual growth rate of more than 3%. However tax rises, while potentially reducing Italy’s public debt, will not stimulate growth, and are not doing so. In fact, the opposite is happening. Italy’s economy is contracting by the day. Businesses are not opening, they are closing.
No work, means no money which in turn leads to falling consumption. Lower consumption means no growth, or recession. Yes, it’s that bleak.
A Solution
How can Italy save its economic skin? Well, one answer might be to ‘switch-off’ the over protective Article 18 employment legislation for five years or so and see how things work out. This would be a risk and it would cause uproar, but it might kick-start Italy’s flagging economy. Deactivating Article 18 would make Italy much more appetizing for foreign investors too.
Silvio Berlusconi really did leave Italy in a complete and utter mess. Such is the mess, some are even questioning whether ‘la dolce vita’ still exists.
Tina1 says
Dear all,
I’ve been in Italy yonks now and I’ve got to my position, state school teacher, the hard way. Forgetting my Brit degree and QTS status and doing it all over again, going through Italian public competitions and exams etc. So you can say I made it! Yeah, my salary is about 1500 so I wouldn’t classify for even a bedsit in London. I’ve heard a lot of slagging on this page and though I am under no spell in saying that life in Italy is great, it is much like any other place in the western world today. Pros and cons and I dropped my pink spectacles ages ago. Italy’s main problem is its politicians that have done little or nothing for their voters and citizens in the last 60 years. There has been so much continuation and political hereditariness that we could call it an elected dictatorship. The same people who founded the Republic are still sitting in the Senato – fortunately one dies now and then. Of course they have just made laws to benefit themselves and families -isn’t that what ‘mafia’ is about. So that is Italy, yeah and if Italy has mafia what is it called in other countries? Take Britain, for instance. A country which gets by, thanks to the hundreds and thousands of charities (who mostly fund themselves (thank God for MacMillan), national buildings need trusts or, like in my home town get knocked down as the council will sell the land and building to Lidl to make a bit of money that it doesn’t get from state and tax payers. All the coastguards are being closed down ‘cos of cuts. Doctors do not come out for home calls but advise you to go A/E or send the nurse out (who can’t do anything as he/she does not have the knowledge or authority – take an aspirin and see how it goes, if you die we’ll call the undertakers who come out immediately, by the way). “Doctor, I have a lump in my breast I need an appointment”. “Will August 2015 be ok? I have other emergencies to consider first” “Ops, Mr Brown we’ve taken the wrong tooth out but that would have rotted in ten years anyway, is that OK? That’s £300”. At the car hire: “I paid for complete cover!” “Yes, but complete cover still means you have to pay for the first £200 of any damages” “But I have an insurance covering everything, I don’t want to worry about scratches etc” “Insurances need to be assured you don’t damage the car, sir”. Don’t even try to have an accident at work and be off work for a few months as you might end up losing your house – 60% sick benefit doesn’t even cover your house bills. But we can always ‘GoCompare’ and pretend we are not being ripped off anyway for home, car, work, travel insurances as well as extra warranty on any electrical products and then have them saying : “Oh, but that kind of problem isn’t covered” . I can go even deeper and look at benefits: ” It’s the fucking pakis, that come to this country and live off the state that we are paying for that are making this country go to the dogs.” Yeah, mate and weren’t you one of those yobs on the dole queue for 10 years , living in a council house, getting free meals for your kids at school, bus rides and even a car to drive them to school. I’ll forget about the new cooker you got while I was struggling with two points on my hob as I couldn’t afford a new one on my wages – my salary was paying for yours!!!! “Oh you’re on income support? But you bought a new bungalow two years ago? Oh, you’ve put it in your daughter’s name. But you’ve just changed your car? Oh your wife has to be driven around as she is too fat to walk!!!!
There are too many things going ‘wrong’ all over the place and let’s not talk about healthcare in the States.
Please don’t get me wrong now – I love my home country and I love my adoptive one – I know my kids will have problems finding jobs in Italy but have yours tried just getting an interview in London lately? Have you heard of headhunters in the city? If you have a grouch by all means get it off your stomach but slagging for the sake of slagging gets my back up!!!! I thought ‘paradise’ was an after life thing , anyway. Don’t go looking for it on this planet and this life time!
Tina
Nastasha says
Sorry Tina,i completley disagree with you there. Im Italian and i moved my family to the U.K for a better life. Best decison we ever made. You say your kids will have problems finding jobs in Italy,the fact is,THEY WONT find a job in Italy. The universities are horrific in Italy. Grotty,understaffed and they do not offer accomodation in the first year! lumping on more costs!!! Italy’s children are known as the lost generation and its not hard to see why,its just an appalling country to live,the fact you claim the UK is worse is laughable. Here in the UK,even though there are problems,children are encouraged more to become entrepeneual. At my kids school in Chichester,they are taught Business studies as early as 14 and are more headstrong and able than Italian children. Of course there are other things that make the U.K better than Italy. Higher wages,better housing quality,lower taxes (yes they are) better education system,better roads,less corruption and less racial tensions. Your trains are more expensive but they are of a better quality than Italy’s. I have no regrets leaving Italy as its got nothing going for it. Im not try to demonise you and make you feel like youve done something wrong,but all Italians that i know if you met them,would stare at you and go ‘WHY DID YOU MOVE FROM THE UK TO HERE’ in astonishment,paticulary if you have children,and more so if you live in Southern Italy!!!!
David says
“Austria does not have an Article 18, so investors may head there.” Not sure how Austria fits in here. No other country in the world, even Spain these days, has Article 18. Come to think of it, thanks to Monti, Italy itself no longer has (or soonish won’t have) Article 18, does it??
Luca Boccianti says
I don’t think art. 18 abolition will change things for the better.
Employers and investors, italian and foreigner, have dozens of legally valid temporary contract forms to use if they do not want to be tied for life with someone. Public bodies, too, are using these contracts since years. Ask any “young” teacher, or city council employee.
So, the legal means to have a flexible workforce is here, and both the State and private companies uses it when they want. And I think any entrepreneur, italian or foreigner, would have a time horizon of, say, six month-one year, and then be ready to “risk” offering a temporary contract of such lenght.
I think the aim of those who want to abolish art. 18 is to get rid of “fannulloni” (“lazy ones”), as mr. Brunetta, a sadly remembered Berlusconi’s minister, in a defamatory way called public employees, spoiled by such privileges as paid sick leaves, safe wage, almost decent pension, no ball and chain and so on, to replace them with “giovani” used to three months contracts and to obey to anything (say unpaid extra hours) if they don’t want to be fired.
Of course anyone can see italian public bodies are bloated with not always efficient personnel, then again it’s not their fault if they were let on board in exchange of votes and if they are very misguided by inefficient bosses.
As well as public employees the idea is to get rid of workers in the private sector hired when workers where used to have some right.
I think this is the real objective, and not to let companies hire and “see what happen”. This is just an excuse.
In my opinion what we would need is a sort of english (or scandinavian?) social security. You will receive, say, 700 euros per month just because you’re 18 or older. This will be positive not only for some keynesian effect: after all the bloated public bodies were such a failed experiment. This will be positive because there will be no more excuse to hire incompetent people and place them in places where they can take dangerous decisions or do their job in a less than optimal way just because they need a wage (or because they’re friend withsome politician). Public bodies will hire motivated people, teachers will be people really able to teach and not failed hairdressers that nobody want in a shop but they have to be accomodated someway because they came from a family providing lot of votes, people will be less ready to risk jail for simulating invalidities to get a pension, and so on.
But probably the best thing it’s that, expecially in southern regions, the evil “voto di scambio” will be less productive, and parties should begin to make real politics to attract votes.
And then of course the economy could begin to run again. Cars will be sold and Marchionne will be happy again (until he menace to move Fiat in Brazil or Haiti or wherever he can have workers fired because they took a pee longer than average). Those who want more than 700 euros because they want a better car or a larger house or flashier shoes will actively search jobs that economy will offer them.
And we could also have a system like the danish one: you have social security, but if you refuse three jobs offered to you then you’re “fired” from social security.
Terry says
Brilliant post. Spot on.
Alex Roe says
Good points, Luca. Everything in Italy is tied to votes!
The lack of a UK or Danish style social security system is a problem – if one were to be set up, Article 18 could be dumped anyway. And a freed-up job market works for both employers and employees.
“And we could also have a system like the danish one: you have social security, but if you refuse three jobs offered to you then you’re “fired” from social security.” – excellent idea and it would prevent abuse too.
Best,
Alex
Toma says
In times of hardship the rich get richer and power is further consolidated. The chances of the mafia and Italy’s corrupt politicians giving even an inch is next to none. The worse Italy becomes the more powerful they become, not on an international level, but on a national one, and that is ultimately all they care about.
Terry says
Article 18 is not the problem, nor are high tax rates for the rich and businesses (because let’s be honest, big businesses and rich people are expert at dodging them anyway). The problem is the corruption and clientelism, organised crime, and high taxes for low and middle income earners. I agree that a job for life is probably impossible, especially if your line of work is becoming obsolete, but loosening workers’ rights right now will only lead to more unemployed people, and given that the safety net for the unemployed has very big holes in it, things will get worse.
I live in a working class Rome neighbourhood and the number of people begging on the streets is terrifying, and has got bigger over the last two years. There is really heavy, aggressive air around the place, and I don’t like it
Alex Roe says
You are right on the corruption and clientelism, organised crime, and high taxes for low and middle income earners fronts – they are huge problems in Italy and do much more damage than many Italians realise. Indeed, they may even vote Berlusconi back in – he thrives on clientelism, but for quite a number of Italians, it’s the only way to go, sadly. Not that it has got Italy too far.
As for Article 18, I do think it might get Italians back to work – not all of Italy’s employers are monsters.
Very sad to hear about the grim atmosphere in Rome.
Thanks for commenting,
Best,
Alex
Terry says
What upsets me most is the future people my age have. I’m 30, the first middle-class scion of a very working class London family, and by the time I’d moved to Italy four years ago (that’s 26 years old, maths fans), I’d obtained a degree and had around five years of professional experience in newspaper and magazine journalism. I don’t consider myself young, nor special in what I have achieved – but people look at you boggle-eyed and envious when you tell them this. I just feel older than people my age here – sometimes I look at 40 year olds and think ‘you’re a fucking baby – grow up’.
I see striking parallels between what’s happening here to how working class Londoners are being slowly squeezed out of their city, ghettoised in terms of accommodation and opportunity. It is so very hard to find a job that pays a living wage here if you don’t know someone, and expectations are so low that people consider €15000 net a good salary. You can see why so many people run away.
Alex Roe says
I see a lot of 20 somethings in my work Terry, and I have to agree with you. The vast majority are extremely immature. Even with your not inconsiderable experience, Italian firms would shy away from you because you are too young (at 30)! As for some 40 year olds being kids, that’s very true too. In Italian culture, you are considered a teenager until you are over 50!
And yes, finding work in Italy can be a nightmare unless you have the right contacts. Salary expectations are horrendously low and yes, this is also why Italians run away and never come back.
As for the ghettoisation of Italy’s working classes, there is a lot of it down in the deep south, and, to an extent up here in Milan but the working classes seem to be very passive here, unlike in the UK. Italy’s unions are more into power games than making the lot of the working man better, and I’ve heard the unions do not offer strike pay here, but I don’t know if it’s true.
In many ways, Italy is medieval, and it is not changing.
What brought you to Italy?
Cheers,
Alex
Terry says
I don’t know if I agree with the working classes being more passive here. Worker protection is worse in the UK, if anything.
Came to Italy to live with my now fiance, who moved here seven years back. She’s an academic and feels more at home n Italy than in England. I scraped by writing SEO shit for a bunch of crooks, but since February I’ve been working for a comms agency and sidelining as a sports stringer for Reuters. So I’m doing all right. Almost none of my friends my age are earning anywhere near what I’m earning: they’re mostly precari of one type or another.
To take you up on a previous point, Italy’s employers are mostly complete dicks, and offer the young people who don’t have connections/strong union representation appalling contracts for shocking pay. This is one of those things where legislation is the only way forward, companies will take the piss if they can, because their goal is to make more money for the people at the top for little cost.
LindyLouMac in Italy says
It certainly is grim and we want to sell our house. 🙁
Alex Roe says
Well, good luck with that, Lindy Lou. I don’t it will be that easy at present, unless the price is right.
Grim, it certainly is.
Best,
Alex
paciscor says
Unless it’s a high luxury estate or you bought it liras, I wouldn’t do that for now. Any way forget the prices could return anywhere near as they where prior or during the first times of the crisis.