People in Italy are feeling the "Angie! We Love You!" vibe (NOT)

Hans-Jürgen Schlamp reports for Spiegel International on the results of Angela Merkel's "ordoliberalism" in Italy, Basta 'La Casta': No End in Sight to Italy's Economic Decline 07/242013:

Italy's Prime Minister Enrico Letta is bragging that Italy's government is limiting their country's economic recovery by adhering to Angie's demands to focus on reducing the national budget deficit during a depression, a procyclical economic policy that is the opposite of sensible.

Meanwhile:

The truth is that Italy, despite being the third-largest economy in the euro zone after Germany and France, finds itself in dire straits, having been in decline for years. Its GDP has dropped by 7 percent since 2007. The last few years, says Gianni Toniolo, an economics professor in Rome, represent "the worst crisis in (the country's) history," even more devastating that the period between 1929 and 1934.

Last fall, the situation looked to be improving, to the point that then Prime Minister Mario Monti promised that "things will improve next year." But those hopes have now faded. The government has reduced its growth expectations for the current year to minus 1.3 percent. The Bank of Italy, the country's central bank, is even more pessimistic, forecasting economic contraction of 1.9 percent. [my emphasis]

And Letta is the Prime Minister from the theoretically center-left party, the Democratic Party, which was formed from the merger of the former Christian Democratic Party with the Italian Communist Party. And he's bragging about practicing Herbert Hoover economics!

And there's this:

The banks, fearful of bankruptcies, are cutting back commercial lending. Even the government isn't paying its bills, with several hundred billion euros in current outstanding financial obligations. It is a dangerous situation, particularly for smaller companies.

Ever Deeper

Barring fundamental change, the country will go bankrupt, fear economists like Clemens Fuest, president of the Center for European Economic Research (ZEW) in the southwestern German city of Mannheim. The vicious cycle of recession, unemployment and steadily declining purchasing power is driving the Mediterranean country ever deeper into crisis.

More than eight million Italians already live below the poverty line, including many who are still employed. The CGIA research institute in Mestre, near Venice, found that one in two small businesses was only able to pay its employees in installments. Three out of five companies are forced to take out loans to pay their high tax bills.

Schlamp, though, recites the neoliberal creed on how Italy is to blame for its own problems by not being "free market" enough:

But the country's structural problems remained. They include, in addition to the tax burden, a bloated bureaucracy that obstructs almost all economic activity, an inefficient judiciary that deters potential investors with trials that can last for decades, a relatively low education level and a poor infrastructure characterized by potholed streets, an energy supply prone to failure, constantly delayed trains and outmoded communication networks.

As a result, Italy continues to fall behind internationally as a place to invest. It is now 44th in the World Competitiveness Center (WCC) ranking, below the Philippines, Latvia, Russia and Peru, and only slightly above Spain and Portugal.

Phrases like "bloated bureaucracy" are neoliberal jargon for not cutting public services enough and not privatizing government services and property fast enough. But what the Italian economy, and the eurozone economy as a whole, need desperately right now is more government spending to provide economic stimulus. And it remains a mystery how, if Italy needs to cut more governments services ("bloated bureaucracy"), they are going to provide a higher education level, better infrastructure with fewer potholes in the streets, a better communications networks and trains that, uh, run on time, to borrow a phrase well-known from earlier decades in Italy.

Gee, this might help! "In its country report on Italy, the Organization for Economic Cooperation and Development (OECD) likewise included a large number of suggestions, such as labor market reforms [i.e., in neoliberal jargon: cutting wages and salaries, weakening unions, reducing job security]. It also urged the government to reduce spending instead of constantly raising taxes." Because reducing gubment spending will fill those potholes right up!

Presumably, he's referring to OECD Economic Surveys Italy 2013. Hint to Spiegel International: with this new Internet thing, you can actually include links to the studies you're citing!

That OECD report I just linked includes these suggestions on those labor market reforms (p. 11):

Remove remaining regulations restricting capacity in retail and professional services; reconsider some backwards steps, notably those limiting the expansion of competition among lawyers.

I'm not sure how promoting competition among lawyers is supposed to create a lot of jobs. But the rest sounds like rote neoliberal deregulation talk.

Promote a more inclusive labour market, improving employability with more support for job search and training. linked with the broader social safety net, rather than preserving existing jobs.

Lay more people off. Yeah, just what an economy in a depression needs. At least according to Angie's Herbert Hoover/Heinrich Brüning economics.

Promote the widening of the current agreement among the social partners so as to better align wages compared with productivity, to help restore competitiveness.

I.e., cut wages and salaries. Awesome.

Broaden the tax base by reducing tax expenditures comprehensively, allowing reductions in marginal tax rates on labour, especially on second earners.

There might be some good ideas concealed in that one. But raising taxes isn't an obvious stimulus to an economy in recession/depression.

Tags: angela merkel, austerity economics, eu, euro, european union, italy