What really sank Berlusconi
Nov. 11th, 2011 02:43 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
nairiporterAfter surviving a number of sex scandals involving under-age prostitutes, charges of corruption, shady business deals, disastrous diplomatic gaffes, and accusations of abuse of power, it looked like Berlusconi had started believing he was truly untouchable. But now reality has proven him wrong.
At the end of the day, he lost his majority in parliament and he announced that Italy is going towards emergency elections, and he wouldn't be running this time. The Italian prime-minister was deposed of his throne not because of one of his trademark scandals, but because of the overall lack of confidence of the markets in the waning Italian economy.
It's no news that the Italian debt is over 120% of its GDP, but because of the market turmoil the investors are very hard to please now. They scrutinise every country and its ability to pay its debts. And seeing what is happening in Greece and threat of having a precedent of a country exiting the Euro-zone, the markets were very sensitive to the confidence vote and the vote on the Italian budget. And Berlusconi lost it. The response was immediate - the Italian bonds reached a record price of 7%. Meanwhile, Portugal and Ireland are asking for help as well, and we all know what's happening in Greece.
Fareed Zakaria said on his CNN segment that "We keep hearing about Greece, but Europe's real problem is actually Italy". He called Greece a "nano-state". He meant that it only forms 2% of EU's GDP. But Italy is one of the 7 biggest economies in the world. And its debt is larger than Spain, Portugal, Ireland and Greece combined.
The problem in Italy is not just personal, it's not because of Berlusconi alone, although he has a great part in it. It is structural. For years Italy's governments have been a joke in the financial department. Italy is just too big to fail, but it could also be too big to be saved. Even German may be unable to bail it out well enough along with the other indebted countries.
Consider this. If Italy announces tomorrow that it cannot pay its 1.9 trillion Euro debt, this would bring imminent collapse to the united European currency, and from there, the entire global financial system will experience an earthquake. Now consider Berlusconi's statements from a few days ago that Italy's economy "is NOT in crisis", because the restaurants, the resorts and the flight seats were all full. It enraged even the Italians who are so used to his provocative statements.
The problem goes much deeper than Berlusconi's shenanigans. The Italian economy suffers mostly from low productivity, high public salaries, heavy tax burden on the business, inadequate structuring of the tax system, suffocating bureaucracy, rampant corruption, clumsy judicial system and disastrous education. It's no surprise that Italy is consistently on the last places among the developed countries in almost all rankings.
The poor education system is the reason for so many young people to be uncompetitive on the labour market, because they lack the proper qualification. The long-term public employees are enjoying excessive security against layouts, and are owed enormous compensations in case of being fired, even when they're totally incompetent. Meanwhile the "newcomers" are in a much worse position because they are forced to put up with ridiculously low salaries and short contracts that give them no job security - and those are mostly young people. The employers generally don't care about improving their qualification because they look upon those as mere "cannon-fodder", low-quality labour material, and interns are forced to work for free for more than a year before even getting a chance to be hired with a contract.
Just like in Greece, such sectors like notary officials, taxi drivers and pharmaceutists are of the "closed" type, and entering the industry happens exclusively through having good connections. This kills the incentive to study for that job, and those who are already there are poor quality. Add the omnipresent mafia and its control on the poorer regions in the South - it totally stifles fair competition there and kills any chances for economic development of a whole portion of the country.
On the upside, unlike the smaller Euro-zone countries who are in crisis, Italy still has a powerful and highly developed production industry and it exports some of the most attractive items to some of the biggest markets. So it's not like Italy doesn't have the potential to recover its economy as it has done before during the reforms in the 90s that allowed the country to join the Euro-zone.
But for good or for bad, this recovery will no longer be the responsibility of Berlusconi. He already announced he will step down as soon as he pushes through the important budget reforms (the ones that are being criticized by everybody, including people from his own party). People from his own camp insist that he should resign even earlier - as soon as November 14. But regardless of when this happens, Italy is going into a period of turmoil - struggling to form a stable government - one of experts rather than politicians.
But Berlusconi is far from finished, let us not have illusions about that. He will concentrate his efforts to preserve the influence of his party on the future governments. He will surely use the enormous influence of his media empire to keep an active participation in the politics of the country.
At the end of the day, he lost his majority in parliament and he announced that Italy is going towards emergency elections, and he wouldn't be running this time. The Italian prime-minister was deposed of his throne not because of one of his trademark scandals, but because of the overall lack of confidence of the markets in the waning Italian economy.
It's no news that the Italian debt is over 120% of its GDP, but because of the market turmoil the investors are very hard to please now. They scrutinise every country and its ability to pay its debts. And seeing what is happening in Greece and threat of having a precedent of a country exiting the Euro-zone, the markets were very sensitive to the confidence vote and the vote on the Italian budget. And Berlusconi lost it. The response was immediate - the Italian bonds reached a record price of 7%. Meanwhile, Portugal and Ireland are asking for help as well, and we all know what's happening in Greece.
Fareed Zakaria said on his CNN segment that "We keep hearing about Greece, but Europe's real problem is actually Italy". He called Greece a "nano-state". He meant that it only forms 2% of EU's GDP. But Italy is one of the 7 biggest economies in the world. And its debt is larger than Spain, Portugal, Ireland and Greece combined.
The problem in Italy is not just personal, it's not because of Berlusconi alone, although he has a great part in it. It is structural. For years Italy's governments have been a joke in the financial department. Italy is just too big to fail, but it could also be too big to be saved. Even German may be unable to bail it out well enough along with the other indebted countries.
Consider this. If Italy announces tomorrow that it cannot pay its 1.9 trillion Euro debt, this would bring imminent collapse to the united European currency, and from there, the entire global financial system will experience an earthquake. Now consider Berlusconi's statements from a few days ago that Italy's economy "is NOT in crisis", because the restaurants, the resorts and the flight seats were all full. It enraged even the Italians who are so used to his provocative statements.
The problem goes much deeper than Berlusconi's shenanigans. The Italian economy suffers mostly from low productivity, high public salaries, heavy tax burden on the business, inadequate structuring of the tax system, suffocating bureaucracy, rampant corruption, clumsy judicial system and disastrous education. It's no surprise that Italy is consistently on the last places among the developed countries in almost all rankings.
The poor education system is the reason for so many young people to be uncompetitive on the labour market, because they lack the proper qualification. The long-term public employees are enjoying excessive security against layouts, and are owed enormous compensations in case of being fired, even when they're totally incompetent. Meanwhile the "newcomers" are in a much worse position because they are forced to put up with ridiculously low salaries and short contracts that give them no job security - and those are mostly young people. The employers generally don't care about improving their qualification because they look upon those as mere "cannon-fodder", low-quality labour material, and interns are forced to work for free for more than a year before even getting a chance to be hired with a contract.
Just like in Greece, such sectors like notary officials, taxi drivers and pharmaceutists are of the "closed" type, and entering the industry happens exclusively through having good connections. This kills the incentive to study for that job, and those who are already there are poor quality. Add the omnipresent mafia and its control on the poorer regions in the South - it totally stifles fair competition there and kills any chances for economic development of a whole portion of the country.
On the upside, unlike the smaller Euro-zone countries who are in crisis, Italy still has a powerful and highly developed production industry and it exports some of the most attractive items to some of the biggest markets. So it's not like Italy doesn't have the potential to recover its economy as it has done before during the reforms in the 90s that allowed the country to join the Euro-zone.
But for good or for bad, this recovery will no longer be the responsibility of Berlusconi. He already announced he will step down as soon as he pushes through the important budget reforms (the ones that are being criticized by everybody, including people from his own party). People from his own camp insist that he should resign even earlier - as soon as November 14. But regardless of when this happens, Italy is going into a period of turmoil - struggling to form a stable government - one of experts rather than politicians.
But Berlusconi is far from finished, let us not have illusions about that. He will concentrate his efforts to preserve the influence of his party on the future governments. He will surely use the enormous influence of his media empire to keep an active participation in the politics of the country.
