Italy calls foul on the EU
Storm clouds are gathering over Italy, and others, again, as the European project exacerbates enduring problems. There's trouble coming, and the Eurosceptic heat is rising from below
One of the depressing things about economics (only one of them, mind) is that just as we have got through the spirit of renewal associated with the New Year (depressing in itself for some), and then reality has caused us to cancel the gym membership, out come the figures to remind us of what we were up to last year.
In Europe’s case it is a pretty mixed report.
Traditionally the figures from Eurostat, the statistics office, are of reasonable quality, but initial forecasts have a tendency to exaggerate the good and are often revised down. This is because they are the basis for quite a lot of horsetrading in the months to come and it doesn’t pay to make yourself look weaker than you are.
What the numbers tell us forms the backdrop to what is going on politically in Italy and elsewhere and to the possible future direction of the EU.
Whilst the spotlight is on Ireland, with its 6pct growth, it looks as if this may be because it has kept its taxes low (regarded as cheating in the topsy-turvy Euro world). The Euro-favourite is Spain which has been through the special measures system and achieved growth of 3.2pct in 2014 and 2.8 pct last year.
Italy of course is not the Commission’s darling. Growth, when there has been growth, has been around 1pct. The country is, as it has been so often, out of favour, and out of favour can mean loss of prestige and influence.
But the Italians are crying foul. Italy has not had its debts rescheduled at the expense of the European taxpayer; it has not been in any kind of special measures. Look at the budget deficits which, unless you are a German economist, are perceived as being the only way of getting any growth in these times.
Italy has kept within the 3 percent limit imposed by Brussels and received a lot of criticism for risking 3.1 percent in its 2016 budget. Look at Spain: 5.9 percent in 2014, 4.8 percent last year and a forecast of 3.6 percent this year. Look at France, which has averaged a 5 pct deficit since the crisis. It is running a 3.9 percent deficit currently and will not be under 3 pct before 2017.
And which country was first to breach the 3 percent limit? Germany.
But there are storm clouds again on the horizon and when that happens countries are apt to look out for themselves: sauve qui peut as the French put it. Several, particularly Italy, are not ready for another crisis. It is likely to begin with the banks, and whilst Deutsche Bank has fallen on the stockmarket,recently, the Italians know that their own financial sector is in far worse shape, with maybe a third of Europe’s €1 trillion of bad debts.
It is worth watching Europe’s banks in the coming months: the level of non-performing loans is double the level in Britain or the US. This is troubling the markets: the premium Italy’s 10 year debt pays over that of Germany, known here as Lo Spread, has gone up to 1.5 percent, not crisis levels but worrying.
Again, Italy appeals to the linesman. Those bad debts are in part caused by the German imposed austerity, and Italy, unlike the others, has had neither help nor leeway. Of course, not all the bad debts are caused by the German austerity. I wrote last year about Banca Etruria, where a client hanged himself. Reports show incompetence and corruption in equal measure. But austerity is making things worse.
Italy’s point is that the Bundesbank terror has prevented it from cleaning up its system. Germany spent no less than €240 billion rescuing its banks, half as much again as even Britain. Many people believe the entire Greek rescue was an exercise in saving heavily exposed German banks at the expense of others including Italy. How much has Italy spent rescuing its banks? Just €1 billion.
Now, after Germany, Austria and Holland vetoed the creation of a European Banking System, which would have made Europe’s banks Europe’s problem, they have passed a law preventing other countries from even rescuing their own banks. The pensioner in the Banca Etruria case hanged himself because he lost his own savings rather than the bank being bailed out.
It may be the fear of recession talking, but Italy amongst others is feeling hard done by. The traditional story that Germany, out of historic guilt, always goes along with the others, no longer rings true. The exchange rate, the austerity, banking regulation, everything seems to have worked well for Germany.
If there is trouble coming, there may be harsh words spoken against Europe’s leadership and Matteo Renzi, feeling the Eurosceptic heat from below, may be doing some of the loudest shouting.
Tim Hedges, The Commentator's Italy Correspondent, had a career in corporate finance before moving to Rome where he works as a freelancewriter, novelist, and farmer. You can read more of his articles about Italy here
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