| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Irish Economy

Global Income Per Capita

Global Cost of Living

Irish Tax - Income/Corporate

Global News

Bloomberg News

CNN Money

Cnet Tech News

Newspapers

Irish Independent

Irish Times

Irish Examiner

New York Times

Financial Times

Technology News

 

Feedback

 

Content Management by interactivetools.com.

News : EU Economy Last Updated: Feb 28, 2013 - 8:41 AM


German spending cannot save Italy
By Michael Hennigan, Finfacts founder and editor
Feb 27, 2013 - 8:01 AM

Email this article
 Printer friendly page
The leader of Italy's centre-left, Pier Luigi Bersani, is trying to get Beppe Grillo, the comedian, and his Five Star Movement (M5S) to join a coalition government after their spectacular breakthrough in last week-end's general election.

There is a common seductive argument that only if Germany ramped up domestic spending, it would be sufficient to spur growth in embattled countries such as Italy. Data is seldom offerred or requested to support the case because it's self-evident!

In the past decade, Italy’s GDP (gross domestic product) increased by less than 3%; that of France, with about the same population, by 12%. The gap perfectly reflects the difference in hourly productivity - - stationary in Italy, up by 9% in France. Italy’s disappointing performance was seen in the country as a whole, North and South alike.

In the course of a decade, Italy received foreign direct investment inflows equal to 11% of GDP, compared with 27% in France.

The real earnings of employees in Italy have been virtually stationary over the past decade, compared with a gain of 9% in France; real household consumption, which has risen by 18% in France, has grown by less than 5% in Italy and only by eroding the propensity to save.

In 2011, Italy had the same Actual Individual Consumption (AIC) per capita as Ireland --  Eurostat, the EU's statistics office, says AIC consists of goods and services actually consumed by individuals, irrespective of whether these goods and services are purchased and paid for by households, by, or by non-profit institutions. In international volume comparisons, AIC is often seen as the preferable measure, since it is not influenced by the fact that the organisation of certain important services consumed by households, like health and education services, differs a lot across countries.

Germany’s trade with the EA16 (the other 16 Eurozone member countries) is almost in balance.

The European Commission has estimated that a 1% increase in German domestic spending would improve the trade balances of Italy and Spain by just over 0.02% while it would have a greater impact on economies such as the Czech Republic and Poland.

Two-thirds of Germany's surplus is ex-EU27.

Italy hardly grew during an international credit boom up to 2007. It would be very welcome if these aspirations for growth could be met but it’s not enough to appeal for growth; How much should other economies grow or spend to have a significant impact on the southern economies?

Part of their problem in the past was that they couldn’t compete with Eastern Europe and China.

Italian firms, on average, are 40% smaller than their Eurozone counterparts. The top 50 European corporations by sales in 2010 included 15 German and 11 French but just 4 Italian firms. Italy’s industrial structure seems static; rarely do firms grow and move up to the next size class.

In the early 1960s, plants with over 100 workers employed 43% of Italy’s manufacturing workers, as against over 60% in France and Germany. Since then the employment share of large plants has declined much more sharply in Italy than in France or Germany, to under 30%

While Italy has several global brands and 70% of the workforce are in the service sector, The Economist said in 2011 that unlike Germany, it has run a current-account deficit every year since 1999 and a trade deficit since 2005. Italy may still have the world’s sixth-largest industrial base, but Britain, often portrayed as an industrial weakling, makes and exports more cars than Italy does.

Italy could leave the Euro and have an exports bonanza just like the UK got from the collapse in sterling with its rounding error exports value to China?

Italy's unemployment level is as bad as it was in the mid 1990s and the youth unemployment crisis has been unchanged for 40 years.

So austerity could be ended but what happens then?

Of course most foreign observers will follow the narrative that the vote against Monti was all an anti-austerity vote.

The aggressive anti-tax evasion campaign against the well-off/ family businesses under-declaring income would not have benefited Berlusconi? Italians have a love affair with Swiss banks?

Increased foreign direct investment would have a bigger impact but governments cannot force companies to invest in a country.

So to the inconvenient truth is that Italy's destiny is mainly in its own hands. Outsiders can only have a limited impact on a dysfunctional system and the resultant stunted economy.

The rulers tend to be old and nepotism is rife in a system where family-owned businesses are significant.

The average age on taking office of Italy’s 12 prime ministers since 1990 was over 62. 

Italy has been electing clowns for decades and at last it has got a professional clown.

"The big problem of the economy is a society that combines elements of the Indian caste system with that of the medieval guilds," Enrico Letta, the PD's (the centre-left Democratic Party) deputy leader told the Guardian in 2011. "Our watchword is social mobility, particularly for the young, who suffer most if people are co-opted into jobs instead of gaining them by fair competition."

Absent the euro, at least the clowns would have only themselves to blame. It would of course be the innocent who would suffer most and the impact would likely trump that of austerity.

Cross-border private capital flows have collapsed, falling from $11.8tn in 2007 to an estimated $4.6tn in 2012. Western Europe accounts for some 70% of this drop, as the continent’s financial integration has gone into reverse. Eurozone banks have reduced cross-border lending and other claims by $3.7tn since 2007, and central banks now account for more than 50% of capital flows within the region.

Even an economy like Germany cannot make up for that.

The attention of all the foreign observers would then turn their attention to some more riveting disaster.

Check out our subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.

Deutsche Welle discussion just before the general election

Related Articles
Related Articles


© Copyright 2011 by Finfacts.com

Top of Page

EU Economy
Latest Headlines
Spain's strong recovery to slow in the next few years
Italy's Mezzogiorno is Achilles' heel of Euro Area - lowest birth rate since 1862
Euro Area GDP grows at weak 0.3% in Q2 2015
German GDP up 0.4% in Q2 2015; France's GDP stagnates
Germany's Surplus: Lots of critics; Credible solutions scarce
Euro Area industrial production dips in June and May after a flat April
Greece faces two years of recession according to EU officials
High EU youth unemployment rate not as bad as it seems
Eurozone retail PMI surges to highest since January 2011
ECB monetary policy still tight for Southern Europe
German exports fell in June — surplus at record; Exports up 13.7% year-on-year
Eurozone manufacturing sector continued to expand in July
Weak euro unlikely to have significant impact on Euro Area growth
Is Euro Area Ireland's top trading partner?: EU28 is overwhelmingly UK's
German car firms boost exports from Spain, UK, Portugal, Czech Republic, Slovakia, Hungary and Romania
Flash Eurozone manufacturing/ services PMI close to four-year high despite Greek crisis
Krugman calls euro a Roach Motel; Hotel California gets 1-star grade
Greece & Euro Crisis: July 2015 articles from Finfacts
Greece and other poor countries in Euro Area will not become rich
Euro Area manufacturing/ services PMI hits four-year high in June
Western European car market: Recovery continues
Greece could become a failed state like Venezuela
Multinational companies pay on average 30% less tax than domestic competitors in EU
EU's list of 30 tax havens omits the biggest 4 in Europe
China to invest in Juncker's European investment fund
Greek talks collapse; Game theorists gambling with future — Germany's vice-chancellor
German exports and industrial production in strong rises in April
Tackling Inequality: Scandinavian countries have the most successful welfare systems in Europe
Eurozone unemployment fell by 130,000 in April 2015 — down 849,000 in 12 months
Eurozone service sector business activity slowed during May
German 2015 GDP forecast cut; Jobless level at 24-year low
Eurozone manufacturing in modest acceleration in May
FDI into Europe at record in 2014; UK on top: Germany location for future investment
Eurozone economy loses growth momentum; Jobs growth rises
Athens leak suggests Juncker has plan for Greece
Draghi will not end QE early but warns of risks
Eurozone grows faster than US and UK in Q1 2015
German GDP at slower pace, France faster in Q1 2015
Germany may cut income tax; Germans still shun risky investments
Germany had record exports and imports in March 2015