The Eurozone crisis (see here, here, here, here, or here) has settled down a bit over the past year, but none of the fundamental problems have been solved.
Italy is the 3rd largest economy (of the big three) in the Eurozone, and the biggest of the PIIGS that are in difficulty. In short, if Italy gets worse, it will be a much bigger problem than Greece has been … and Greece’s problems have been big news for a couple of years now.
Italy’s general problem is similar to other developed economies, they’re just further along: an aging population has voted itself too much entitlement spending, and the government is having trouble financing that. Italy’s specific problem is that it is far more difficult to fire workers there than in other countries.
Fourteen months ago, Italy formed a new government with an economist, Mario Monti, at the top (yeah). But this probably will just give economists a bad name, since the economic problems are a symptom with political causes: Monti replaced Berlusconi, a sleaze who retired to face his many corruption charges.
More importantly, Monti is more a creature of the European Union government in Brussels, since he has held positions with them since the early 90’s.
Anyway, Italy has a parliamentary system: imagine if America had no presidential elections, but the majority party in Congress was allowed to choose the president (usually called a prime minister in a parliamentary system) and cabinet. Italy also has more than 2 political parties, and they come and go more frequently, so coalitions of larger minority parties usually end up hammering out a new government.
Italy just had an election. It was widely seen as a referendum on the reforms instituted by Monti to improve Italy’s ability to be a stabilizing rather than destabilizing part of the Eurozone. These included higher taxes (particularly taxes on the not-very-liquid wealth held in the form of family homes), efforts to make the labor market more flexible, and an increase in the retirement age.
Monti’s party lost. In fact, he came in fourth out of four. Worse, he came behind Berlusconi (reappearing like a bad penny) and an instigator named Beppe Grillo.
Grillo is widely reported in America to be a comedian. This isn’t quite right. He is an older sitcom actor, who got political and was banned from Italian TV (no doubt the politicians got him censored): think a combination of Tim Allen and Jon Stewart. His blog is widely read (English version). His politics are primarily “throw them all out, they’re all crooks and bums.” So, he’s a combo of Tim Allen, Jon Stewart, and Ross Perot.
It isn’t clear how this is all going to turn out. What is clear is the analogy: the Eurozone is like a dysfunctional family in a reality TV show, Italy tried to clean up its act, and it just checked itself out of rehab. Stay tuned for trouble.
UPDATE:
Italians born in 1970, who are about 43 now, will pay 50% more in taxes as a percentage of their lifetime income than those born in 1952, according to research from the Bank of Italy and the University of Verona. The research also found they will receive half the pension benefits that Italy’s 60-somethings are getting or are poised to get.
No wonder they want to throw the bums out.
Via Marginal Revolution quoting an article entitled “'Lost Generation' Feels Italy's Fiscal Squeeze” from The Wall Street Journal.
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