Italy in recession, for the third time in 10 years.

It was expected, but still hurts. And the plans to ensure a positive sign to the national economy are unclear.

Italian economy enters in recession and Rome struggles with holes in the street

It didn’t seem to shock nor surprise the Italian prime minister Conte and the finance minister Tria the latest results on the gross domestic product.

For the fourth quarter of 2018, fourth in a row, it has a negative value, meaning that technically Italy enters in recession. The entire year under performing compared to 2017. Of 0.2%.

Conte expressed optimism and somehow enthusiasm when looking to the future, claiming Italy will go back to positive sign during this year and minimized the result, just under the 1 percent overall.

It has to say that this percentage has deteriorated in particular under his government, albeit some may claim those results are still the outcome of the decision of the previous one.

And that the result was expected as it was reported by this same outlet just one week ago on how the Italian economy was on the brink of recession.

The road to restore a positive sign on the gross domestic product of the country is difficult, not impossible, but the recession itself only makes it more complex.

The expected growth of the interest rate and less trust on the economy will reduce investments and the possibility to support internal benefits, unless taking on new debts.

This will be at a higher costs and really not the direction the economical foundations of the country should be going.

Italian economy slowly on the brink of recession

In economy, there’s the tendency to say that debt is good till there’s growth. Italy has demonstrated over the last few decades that its debt wasn’t good anymore and this is now very bad.

Italian economy slowly on the brink of recession

In economy, there’s the tendency to say that debt is good till there’s growth. Italy has demonstrated over the last few decades that its debt wasn’t good anymore. The very little expansion of the economy, that in some cases has been even negative hasn’t supported a growing public debt bringing the country to the risk of a new recession in only few years.

Italian public debt is currently at 133.0% of GDP, after a slight decrease of 0.1% from previous quarter.

Bank of Italy has recently revised the estimate of GDP 2019 growth from 1% to 0.6%, with 0.4 points less than previously assessed.

And this is precisely matching the same estimates from the International Monetary Fund forecasts for 2019.

The recent decision of the Italian government, as included in the 2019 Budget law don’t seem of having changed the mind of investors and bankers, which are constantly reducing their exposures on the Italian market.

The growth was interrupted in the third quarter of 2018 and it’s thought that the activity could still be diminished in the fourth quarter: if it occurred, such a possibility, it would be equivalent to a technical recession.

Italy’s historical heritage comes as full package, including the tedious too

Publio Cornelio Tacito used to say that ”Laws are many when the nation is highly corrupted” still the same today?

tiber river, history, heritage, corruption

Bureaucracy, and public administration, the guardians of a country efficiency; what should allow both society and economy to run on safe path, growing towards their specific objectives, may be their main obstacle.

The results of a study from Cgia of Mestre – Venice, Italy, based on European commission data according to were quite clear. And its index too.

The index looks, at quality of services offered by the public administration in 19 countries of European Union, and rank them after a quite techincial scoring. This rank sees Italy as the second last country. Down at the bottom. Only Greece does worst. The country very well known for having suffered (and still partially) high stress on its society due to the collapse of its economy.

On top of the chart instead Finland, the Netherlands and Luxembourg.

Costs and hopes

The overall costs of this inefficiency is about 31 Billion Euro for Italy alone.
There’s multiple reasons the keep this poor standard of public administration. One explanation seem connected to a cultural mindset that facilitates this. Already in the second century A.D., the Roman senator as Publio Cornelio Tacito used to say that ”Laws are many when the nation is highly corrupted” to define how bureaucracy and a corrupted system was weakening the potential power of Rome.

Also today, public administrators looking for opportunities from their power and the finances they administer, are the main obstacles to the growth.

The political system doesn’t seem to oppose as seems almost colluded. Keeping the complex system that doesn’t allow changes to the status quo, keeping comfortably stable the position.

A slow machine that lose energy from the inside, and doesn’t find a way to fix it.

Italy budget law 2019, a really important matter

It’s time to see 2019 Italian budget law in action. What does it really mean for Italy ant the EU?

Italy 2019 budget law has been just approved by the national parliament and it effectively become official as of January 1st 2019

What does it mean for Italy, its citizens and the EU? And why so much discussion and work behind this.

Let’s take a little step back, also as this is the first article on this topic.

Italy current government started its operations after the election of March 4th 2018 and its path hasn’t been the smootest so far.

2 parties, quite far from each other and surely far before the elections found theirselves to be ruling together the countries after the general vote. Movimento 5 Stelle (M5S) and la Lega (former Northern League) joined the forces together to start a government together, despite the large distances in between. It seemed the only options, after Partito democratico (PD), previously in charge of the government, has refused talks with M5S and didn’t achieved enough votes to be alone in charge.

M5S, a populistic party that moves from left to right views, with an attempt of being revolutionary in the way in which is built (internet based and first party) and la Lega, definitely right wing, often showing extremist views, albeit always refusing any allegations with extreme right politics.

Both parties very far in basically everything, from infrastructure to migrations, from economics to society, but with one single fundamental common point. Being both declared anti-EU establishment. Not anti-EU per se. But definitely shouting loud versus the doctrines and the leaders in Brussels.

Now back to today and the 2019 budget law

Budget law requires a more involvement and participation from the national government and parliament and in accordance with the EU. It’s the most important bucket of laws issued every year, with the financial, fiscal and social plans to come.

In the Italian case, this become a of particular interest, when it touches the possible creation of debt, given the Italian National Debt being one of the highest in the world, and in EU behind only the one of Greece. And the initial plans from the Italian government were exactly in this direction. Main motto being: more debts, more investments and liquidity to restart the economy.

European Union

In the last months there has been a real arm wrestle between Italy and the EU on the 2019 budget law.

An arm wrestle which didn’t leave any winner and has been handled quite poorly by both sides. Italian government went backwards, from an initially quite strong point of view on how loose being with regards to deficit and debt, launching significant investments and plans in support of citizens, to a more comfortable plan for the EU. Being more tight on producing debt (already way out of control) but also with internal investments and plans. One step back, showing weakness and not accomplishing what promised during election campaigns. Main visible lost, moving from over 2.4% of deficit to presumably something around 2%..

EU and its leaders didn’t win either. Yes, they may have reduced the risks from an economical stand point on the short run, but mid and long are all to be seen.

The impact on Italian voters may have been harder then expected. The image of EU went deteriorating also because while using the stick with Italy, seemed to use the carrot with France which pushes to expand its deficit. Doesn’t matter to voters that the two situations were different in many reasons. They seemed the same and that’s what matter. An unfair treatment.

2019 will have EU parliament elections and if we may see the first signals of that.

In any case, what is the law all about?

  • National Basic Income. A bold move strongly requested by M5S. Provide a basic income to almost 5M italian citizens. For 9 months, presumably starting as of March 2019. Much more ambitious before. It has been reduced in costs.
  • Gold pensions (pensioni d’oro): cuts to retirement pensions (in Italy fully public) from 90k EURO per year and above.
  • Age for retirement: introduced 100 quote. 100 as sum for years worked + age. Still unclear on how will be implemented. Definitely a risk for the debt.
  • Flat Tax: what Lega was asking for during election campaigns (15% flat tax for business entities) hasn’t been achieved. But something similar for who made less than 65K Euro with tax reductions for a few (5) years
  • Write off: government writes off old small debts under EUR 1000 made before 2010 and support the returns of newer with lighter payment plans
  • Children care: up to EUR 1500 as bonus to subscribe babies and toddlers to public and private day care
  • R&D: more support (up to EUR 90Millions) to National research Center. Not too much, but wasn’t included with too much relevancy in the parties plans.
  • A long series of small improvements, with no major impacts on the overall budget, which may still be amended as law will be executed.

So, here we are.

Now will need to become effective in the next months and the eyes of Italians and the entire EU will be following closely the events.