tag:blogger.com,1999:blog-3949752.post3144640451181998969..comments2023-04-29T17:39:27.807+02:00Comments on Italian Economy Watch: Italy's Economy On The Ropes (Again)Unknownnoreply@blogger.comBlogger4125tag:blogger.com,1999:blog-3949752.post-41477716698507849502008-07-09T18:29:00.000+02:002008-07-09T18:29:00.000+02:00Edward,I do want to say that your July 2 post is e...Edward,<BR/>I do want to say that your July 2 post is excellent. I had been waiting for it for a while. I expected your January 2008 post would attack the issues more aggressively, but as you say one can remain hopeful, despite how naïve that hope may be. I am glad to see you have clearly brought up perpetual contraction (or downsizing), although I suspect you have believed in this prospect for a while now and are just publishing it clearer today.<BR/><BR/>I have a few points to make on your post:<BR/>1) It's interesting just for fun to accumulate GDP% by quarter (adding up all Q1, Q2, etc separately). Unfortunately, the only thing it tells me is "what's up with Q2 the last 8 years?"<BR/>2) The economy is indeed slowly but surely sinking like Venice into a long-term downsizing trend.<BR/>3) Any prospect for relative productivity gain is a laughable pipe dream due to the structural weakness of the everyday Italian economy. So, we can forget about that ever happening in a susbstantial "fashion". Gravely difficult to overcome this problem.<BR/>4) Eurozone membership has hurt Italy, because it restrains their intrinsic character of developing Argentina-like long-term economic solutions that were pursued in the previous decades. How could anyone expect the Italian character to change in such a short time? Not me. E-zone membership has worked against them regarding the provisiion of cheap money to perpetuate the problem, and restraining flexibility.<BR/>5) Immigration policy is based on the character of the Italian people, and will only amplify their movement towards a dual society of rich and poor, with a disappearing middle class - due to their racism, bigotry, and xenophobia. So, no help from this Xanadu either. USA, Italy is not (no matter how much they claim to have learned from the States).<BR/>6) Exports? Laughable. Family businesses will see quality stagnate and productivity shrink. The Italians who are ambitious and want to truly develop their family businesses (instead of living off of inheritance and taking perpetual vacations) will create jobs for their exports in cheaper countries, thus exasperating the problem. Regarding Government spending, nothing to add there - just an inadmissable situation based again on inherent character traits, as apathy of the people and/or selfish nostalgia for past comforts yesterday grant Government the power to continue. Who cares? We all die off in the end, right? Just look around the Roman Forum. It made my morning commute to the investment bank very interesting from an existential point of view. Everyday wondering what the heck are we doing here, and what is the meaning of life. So who cares about government fiscal responsibility? In the end, nothing matters.<BR/>Luckily I am relocated to Miami (after a period in Chicago), where things (even in recession) are quite dynamic and my outlook on life is more (shall we say) positive!<BR/>7) Consumption will continue to fall, well-paid job growth will continue to stagnate -despite retirements. Italian-owned capital investment will happen in countries other than Italy (China, India) where smart Italians are creating new jobs. Foreign investment will continue to be blocked by the resistance, and other countries will benefit.<BR/>8) Trade balance will deteriorate, because if and when the global economy recovers, relative export prowess will have declined so much that any favorable trade balances for Italy will be a nostalgic thing of the past and new investment in machinery will happen where ambitious Italians have set up shop - meaning hardly anywhere. Let's just go to Ibiza and party.<BR/>9) So - growth from exports and government spending will continue to deteriorate, even in global good times and will accelerate the permanent decline in the bad times.<BR/>10) Italy's attempts to encourage a housing bubble as an active policy and temporary solution to stagnant stock market indices failed due to a weak structural backbone needed to sustain it. Right now the market is severely overpriced for its populace. Immigrants, even if they could afford it, will be discriminated against anyways. Have you ever seen a Colombian in Italy apply for a home loan? It's not pretty. Despite overvalued real estate, I won't hold my breath for a quick correction. Foreign buyers have helped and may will be an ever-important component as Italy moves towards a downsized version of a museum and antiquity economy.<BR/>11)OECD recommendations, while pertinent, will never be implemented in a timely manner to hold off permanent decline - if they are implemented at all. I can see a beginning implementation happening sometime around 2030 - but it will only happen after Italy exits the Eurozone and their pension system fails.<BR/>12) New employment has gone to immigrants, but it is rare to see Western Europe-style well-paid middle class wages go to immigrants - even to those from other euro-zone members. Remember, nepotism rules in Italy unless it's a menial job noone wants. So, I don't see an increase in immigrants substantial enough to take up the slack for pensions unless there is open borders - but Italians are notoriously xenophobic in this matter.<BR/>Remember the monkey noises in football games, only a few oinked out loud - but many were silently yelling bravo, agreeing, and laughing. It's still the 1930s regarding race in Italy. Unofficial Jim Crow laws à la USA are keeping the tradition alive and well.<BR/>13) National debt will continue to arise along with unsustainable interest payments, relative yields will widen re: sovereign debt, and any flexible economic programs will be crushed under the weight of cuts to pay the doomed pension system.<BR/><BR/>In conclusion, my recommendation would be an Argentine-style economic meltdown consisting of a measured withdrawal from the eurozone, devaluing of a sovereign Italian currency, and renegotiated debts to the ECB from the fallout. I do not believe that lowering national debt rating by S&P to BBB- or CCC+ (which could be a worthy substitute) is a good enough solution because it just builds more pressure and could even be *more* catastrophic for the others then a measured withdrawal and debt negotiations would be. Some will argue that Euro's credibility would be damaged, but if I am an investor, I would rejoice that Italy is no longer part of the zone - especially if the SEK and the GBP join at the same time Italy exits! The Argentine style meltdown would work, because Italians excel at the dramatic, and so they could sell it to the ECB. One Caveat would be to make sure the dirigenti have their money invested across currencies, so they'll be able to inject the country with capital - along with the foreigners when everybody runs to the jackpot. Only then, when chaos breaks loose, will Italy gain energy to perform that it is seriously lacking today.<BR/><BR/>PS - Your Dürrenmatt joke was awesome, and your ensuing take on it hit the nail on the head. While Italy exhibits characteristics of all angles you mentioned, before anything can happen, we must take in consideration of basic human behavior and relation to environment. In this way, I argue that after 3000 years of human character/national character development, the Shakespeare explanation is the most accurate of them all. Beckett and Brecht are results of character, and Dürenmatt's take would be insulting to any Italian, and I would be horrified if it were the reason - although I wouldn't discount it altogether!<BR/><BR/>I love Italy, I really do. If I didn't, I would not waste my time on this.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-3949752.post-48092163047382345272008-07-07T16:12:00.000+02:002008-07-07T16:12:00.000+02:00I personally feel the short term future doesn't lo...I personally feel the short term future doesn't look bright for Italy either. I wrote an article regarding Italy's economy after the European Central Banks interest rates increase. <BR/><BR/>http://labelleinvestor.blogspot.com/Peter Klibowitzhttps://www.blogger.com/profile/10062752565255461756noreply@blogger.comtag:blogger.com,1999:blog-3949752.post-9393352351838626502008-07-07T11:27:00.000+02:002008-07-07T11:27:00.000+02:00Hello Piazza,Thank you for your interesting commen...Hello Piazza,<BR/><BR/>Thank you for your interesting comment. You do paint a rather pessimistic picture though. I don't say you aren't right, just that this is very pessimistic.<BR/><BR/>Since I am a child of the enlightenment, I still try to cling to some shreds of optimism although I know this isn't always easy. We live in hope, as they say.<BR/><BR/>But this problem isn't simply an Italian one. It is just that Italy is one of the first to pass through the hoop, and hasn't got the large industrial reserves to draw on of a Germany or a Japan.<BR/><BR/>In this sense Italy may well be more representative of what happens in one country after another as fertility falls and populations age. Another reason why I don't want to let myself drift into pessimism.<BR/><BR/>"Like an Italian told me in Milano last year "we already paid our dues and contributed to world culture back in the 15th and 16th centuries and in early Roman times, we are tired of working - we want to relax now.""<BR/><BR/>This sounds like an invitation to enter the tomb, since this is the only place the Milanesi will find this kind of repose.Edward Hughhttps://www.blogger.com/profile/10384039867580949531noreply@blogger.comtag:blogger.com,1999:blog-3949752.post-52165358965371834222008-07-06T00:21:00.000+02:002008-07-06T00:21:00.000+02:00Nobody ever talks about downsizing.Companies downs...Nobody ever talks about downsizing.<BR/>Companies downsize and so do countries.<BR/><BR/>Immigration as it stands today will only delay the Italian downfall. The Italian people are far too racist to accept a radical immigration reform - the kind that will stimulate sufficient domestic demand from immigrants having babies. Or, just as good, an opening up of markets to long term investment from rich countries, such as the US, UK, China - or even Brasil resulting in higher domestic demand. The Euro puts a drag on the latter strategy, because if Italy still had Lira, they could allow their currency to devalue, making it a cheap place to acquire assets. I know that I would definitely make some diversified real estate purchases in Italy if the prices were as low as Buenos Aires. Even Buenos Aires with 2008 prices and inflation is better than Italy - and Argentina's economy is dynamic clocking in 7-9% annual GDP growth post-devaluation.<BR/><BR/>A nice correction in real estate or an accelerated depreciation of asset values in the overall business community might allow the foreign asset buying increase sooner rather than later even taking the Euro into account.<BR/><BR/>But, knowing Italy as I do, what will happen is a country downsize. It will be one of the first countries to follow the GM or Ford business model. That is to say that Italians will dig even deeper into the ground, those with money will have kids, and jobs will be given to them through networks and connections. The rich will most certainly survive. The middle class will cease to have children and thus will die off. The immigrants will have trouble taking the place of the Italian middle class and remain underemployed. Foreign investment will be limited due to lack of reform and xenophobia.<BR/><BR/>In the end, Italian economic output will drop year over year in a long term trend that will find a decreasing population with the country no longer occupying the top 10 of largest economies, falling to the top 20 or 25 in the end of the cycle. Obviously the pension system will fail and the Italian middle class will die a lot poorer than expected. The rich elite will simply use their Lugano tax evasion money accumulated since the 1950s to finance their spending when the pension system fails. The rich should continue to ignore all pleas to repatriate money from Lugano or Miami back into Italy, because they will clearly need this money. The smart ones with capital remain small, flexible, and entrepreneurial and they will continue to invest in family-oriented projects outside of Italy.<BR/><BR/>The truly annoying Italian habit of only taking care of one's own clan will deter any meaningful resistance to a country downsize.<BR/><BR/>In the end, there is nothing wrong with downsizing and being small - repositioning for a leaner and more lucrative economy. Many countries in the world are smaller than Italy and perform a lot better.<BR/><BR/>Italy should actively pursue a downsizing mentality, because it is unable to perform across-the-board with the elite of the world. The middle class will die a silent death, or they will move to a more dynamic country. At the conclusion, Italy will regress back into disorganized states based on the clan and regionalism mentality.<BR/><BR/>Like an Italian told me in Milano last year "we already paid our dues and contributed to world culture back in the 15th and 16th centuries and in early Roman times, we are tired of working - we want to relax now."Anonymousnoreply@blogger.com