“Arrivederci, Silvio”. Not since the barbarians invaded Rome has Italy looked in such a sorry state. Ditto the rest of Western Europe. Why are Europe’s states weighed down by such terrifying levels of debt?
How did it all come to this?
Lots of reasons, but ultimately it’s down to the politicians and governments (left and right), who have for too long pursued a form of fuzzy social democracy or “socialism-lite”. Generous welfare states and unproductive state employers have developed and expanded over the past decades. Steadily declining productivity has been countered by pumping ever more easy money into these great increasingly sluggish and unreformed bureaucracies. Access to easy money (and debt) has been made possible thanks to the shared Euro and lenders inexplicably ignoring the reality that lending to lazy corrupt Greece is a bigger risk than lending to hard working Germans. There has been a calculated strategy behind this too – these state monoliths are cultivated as vast voter reservoirs whose enduring loyalty has been purchased with levels of earnings and benefits unaffordable in the long term.
In some euro countries, state employment (let make that dependency) is at the 50% mark. That is economically unsustainable unless you are an oil rich Saudi Arabia. In countries like Greece, it’s only the life support systems of foreign loans that gave the illusion of life to these vast state cadavers. Often private firms are scarcely better. Rotten to the core with corruption and graft, their only purpose now is to sustain their own existence. It’s been a case of too many people, doing too little of value or point and costing far too much to do it, all for far too long.
Less and less for more and more – gets my vote!
As people generally do less and less (like the French 35 working hour week) and expect the State to provide more and more freebies (education, health, early retirement (45 years old if you are a Greek policeman), allowances for just about everything etc.), so the election winning promise of an enduring Utopia has to be sustained by ever more Government borrowing. The real economies have now faltered under this weight forcing yet higher and more expensive borrowing. Set against this, the only way to win elections, is to promise even more than your opponents and forever deny economic reality (“We will all have to start living within our means” being a great example of a sure fire way to lose an Italian / Greek/European election). It has all been short term, political expediency bought on the never-never; debt recycled and passed from Government to Government like a giant political pyramid scheme. And now its collapsing.
Can Italy escape?
In theory “Yes”. But it would take strong, smart leadership, sustained over several years by a powerful government to lead Italy out of the predicament it has “borrowed, spent and lazed” itself into. The solutions are smaller Governments and prosperity built on productivity (not false growth funded by debt like an addict funds a habit). That eventually means smaller states and less state spending. It will be a long, slow and very painful correction. That means some brave pills being taken by new, brave political leaders in Italy and across Europe. It means properly elected leaders, happy to be unpopular and who are prepared to grit their teeth and stay the course, like George Osborne, despite the shrieks of protest when the going gets tough.
The last time Italy had such a leader was Julius Caesar, so, in reality “No it probably won’t escape”. As for the rest of Europe, they are probably not as politically chaotic as Greece or Italy, but the challenge to sustain the Union looks increasingly formidable. The invaders are at the Gates, not with swords and horses, but in the form of eastern and Chinese competition - Is this going to be the fall of the Euro Empire?
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