Courtesy of Uk in Italy (https://www.flickr.com/photos/ukinitaly/) carlo cottarelli
Carlo Cottarelli, from Cremona, born in 1954, is currently the director of the Observatory of Public Finances of the Sacro Cuore University, but in Italian’s people mind he still represents the “scissors man”, the man that more than anyone tried to give his contribution to cut the expenses of the companies and organizations run by the State, by virtue of his position during the short Letta Government.
Carlo “scissorhands” is back in action
Precisely, Cottarelli was nominated Special Commissioner for the spending review, before Renzi’s Government had assigned him to the International Monetary Fund in the role of Executive Director of the Board. Promoveatur ut amoveatur? Whatever the answer might be, the economist kept being highly considered by the people. Capethicalism had the chance to be at the presentation of his new book, The seven sins of Italian economy (Feltrinelli), which took place on March 15 in Lecce during a meeting promoted by Popular Bank of Puglia.
Is this the recipe of a specialist or a political program?
Vito Antonio Primiceri, executive of the bank, introduced Cottarelli to the audience by giving some context on the situation of the Italian economy, also providing some figures from 2017. The average of the EU’s gross domestic product is 2,4%, while our is lower (1,4%). These data are discouraging, especially if compared to the growth of the Spanish GDP (3,1%). Primiceri has rubbed his nose in it: the south of Italy is still, he said, and the EU directives, such as the recent one that requires that in the next two years banks have to reset the unsecured debts, are proof that the gap between the EU standards and the times of the Italian’s administration and red tape. In fact, such action in Italy, in this timeframe, can be started, at most, but not completed.
Simone Bini Smaghi, deputy head of Arca Fondi SGR, asked a question that had remained without answer during the meeting: is Cottarelli’s program a political one? This question is neither trivial nor rhetorical, considered the fact that he was brought up by newspapers and affiliates to authorities as a plausible Prime Minister Super parties in case of political impasse after the elections of March 4.
A nation at risk with unprotected account
According to Carlo Cottarelli we are still a nation in danger due to our public debts. “However”, he added, “I knew that after the elections nothing would happen on the markets, because markets have lot of cash circulating”. His estimations are not negative. Italian economy is growing, even though slowly. Confidence toward the future is present all over Europe. This situation will last until the BCE (European Central Bank) will continue to buy government bonds, but within two years two things will happen: a physiological increase of interest rates and the succession of Mario Draghi leading the BCE itself.
Who will take his place? If Northern European, an highly possible event, we would see a current policies change, that is to say less quantitative easing, less currency in circulation, and the consequent risk of recession with relative GDP decrease. Italian problem is not the high debt, but the match of “high and growing debt”, a mix that, for a nation, may lead to very serious crisis and even to bankrupt. That’s why, before there’s a shock, “we have to protect the account”.
Six longterm deadly sins, more a recent one
“Our per capita income, in terms of purchasing power, is the same as the one from 20 years ago, an unprecedented fact in the republican history”. The seven deadly sins that affects Italian economy and reduce his possibilities of growth are all longstanding sins, would have to say structural, except the last one, more recent, but not less insidious. Here is, the following list.
1- Tax evasion. The only VAT evasion is estimate around 27% than it has to be;
2- Corruption. Among world’s nations, Italy occupies the 50 place of the league drafted through the Corruption Perception Index, an improvement (it was on the 62 place in the previous detection), which does not console us;
3- Bureaucracy. The report “Doing Business” of the World Bank says that is still very difficult, for Italians, to star up a business. Rules does hold back the economy and are a cost for companies;
4- The slowness of justice. The average duration of civil trials, measured in 2014, was of seven years and eight months;
5- Demographic collapse. Despite cliches, the birth collapse involves more the South than the North of Italy. Today children’s average per woman amounts to 1,34. Obviously, less workers means less pensions. As if that were not enough, also the production per person decreased.
6- Discrepancy between North and South. Particularly, there are four discrepancies, one on the performance of the Public Administration, one on the public finances balance, one on human and social capital, and one demographic. Is it the seven sins?
Euro is a burden, but getting out of the unique coin would be worse
The seventh is the difficulty to coexist with the Euro. There is no point in hiding this, “Euro lead to an exchange rate loss of flexibility”. Italy could no longer use an instrument which guaranteed his export, that is to say currency devaluation, a possible measure with the old Lira, impossible with the Euro. “We were not prepared. Euro made us growing little”. After all, according to Cottarelli it makes no sense, today, talk about the exit from the Euro, because even if we do so then we will be forced to cut real wages to quickly regain lost competitiveness.
Our real drama, in these fifteen years of unique coin, is the cost of production increase. In other words, despite a worker produced more, did not earn more, contrary to Germany, where wages increased significantly in view of a moderation of the costs of production. “We must try to converge towards the German model of development”, and to do this we must lighten the fiscal weight of companies, reduce bureaucracy, fight tax evasion seriously, and above all remember those business activities failed during economic crisis. Support must be given by any means to the export to save small and medium sized companies actually facing difficulties.
A litigious population, of individualist and irresponsible
“In Italy prohibit power is due to an over regulation”. Italians are incredibly litigious, they sues each other very easily, “they are sick of individualism”, said Cottarelli. Unfortunately, pressed, “we consider the State as the first instance called to take action”, but this attitude leads to a discharge of the individual.
Public Administration should work in the same way in the North as in the South, and mostly it will be essential to invest more in human capital, in public and private sectors. Moreover, how is it possible to attract investment if, to give an example, there are different tax rates according to the kind of bread baked? What’s the point of taxing a bun in one form and a baguette in another? In conclusion, Cottarelli referred to his book for deepening all the issues covered during the evening, not without a feeling of nostalgia towards the past, “when parties expressed a clearly recognizable ideal of society, whereas now everything is vague”. It will be helpful a Cottarelli to clear the situation? Who knows.
ALEXEIN & FIT
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