Blood, sweat and tears

December 4, 2011 11:37 PM

Nobody was surprised when Italy Prime Minister Mario Monti presented a draconian "save Italy" emergency Budget decree on Sunday - that's what he had been nominated to do. But the full impact of the measures, especially hitting pensioners, became stunningly clear when Welfare Minister Elsa Fornero, invited by Monti to present her ministry's section of the decree to the press and TV, broke down (SLYT) and was unable to bring out the word "sacrifice".
posted by aqsakal (72 comments total)

Berlusconi got out while the getting was good.
posted by delmoi at 11:57 PM on December 4, 2011 [5 favorites]

The pensioners are getting sacrificed.
What sacrifices have the bankers made?
posted by Poet_Lariat at 12:01 AM on December 5, 2011 [40 favorites]

50% haircut on Greece, probably more to come on Italy.

Not as much though, to be sure.
posted by jaduncan at 12:05 AM on December 5, 2011

It just seems insane to me that we aren't just seizing money from the rich to pay these outrageous debts world wide. Hell, raise MY taxes, I don't care, but at least stop putting the pain on the people who can least handle it.

At some point there's going to be a world wide rebellion. I'm wagering on this spring. 2012 is going to be 1968 all over again.
posted by empath at 12:07 AM on December 5, 2011 [14 favorites]

I'm not sure how much more abuse the Italian public can handle. I fear that they might become very self-destructive in the coming months.
posted by Foci for Analysis at 12:09 AM on December 5, 2011

If the Euro goes down and Italy does too, they are also all screwed. On the other hand, nobody knows what happens then since that would be a failure of the monetary system for an entire continent. That's basically where we're at. Cats would sleep with dogs. People not being able to use ATMs reliably, paychecks not being paid. It would be insane. All of the banks get to go bankrupt; there just isn't the sovereign money left to bail everything out again from what would be far bigger than 2008.

Italy is screwed either way. The debts are denominated in Euros, so they can't be inflated away even if Italy withdraw from the Eurozone. Italy would immediately stop being able to borrow, and have existing interest rates shoot up. They would be screwed, cats sleeping with dogs, etc etc. Everyone would be screwed. Failure to meet payments will result in interest rates being quickly insane even without withdrawing from the Eurozone. Italy would be screwed, cats, dogs, etc.

Everyone is locked in, and everyone is making sure that the house of cards stays up long enough to be able to build good foundations whilst balancing on the top of the existing messed up structure.
posted by jaduncan at 12:14 AM on December 5, 2011 [1 favorite]

Screw the Euro! The banks that are holding the largest debt bags, after lending to weak countries, are - guess who? - GERMAN banks; they have the most to lose. Of course, the US will try to ride this recovery under the table, via the IMF or some other agency, to whom it contributes the lion's share of support. The whole damn thing is a setup.

The Euro is another "follow the money" idea. It was always something was was going to make it easier for *financiers* to leverage their capital! It's a lot easier to do it with one currency (the Euro) that's largely under central control and monitoring, than with a bunch of diverse currencies that create exponential risk variables. Note that after the Euro was introduced, there was a lot of "rounding up" of the cost of consumer goods; prices for all kinds of things, form coffee to bread to consumer items went UP. Who profits from that? Not the 'man in the street - that's for sure!

Europe's strength is its diversity. The Italians, like Americans, have been swooned into believing that their "miracle" was on automatic; they got lazy with their democracy, just like America did - now they're paying a price to the financial whores who have been stealing their country, right under the Italian's noses.

That said, Italians won't take this sitting down. And, these austerity measures don't really solve anything. The Euro is a broken idea. My hope is that the Italians go to the ballot box, and through other means find a way to break the Euro. They should leave the Euro zone and find their own way out of the mess that they got themselves into.

I wish my fellow Italians good luck!
posted by Vibrissae at 12:17 AM on December 5, 2011 [3 favorites]

She's the courageous one?

When grandma is eating cat food out of necessity, and grandpa doesn't take his meds because he can't afford them -- that's courage.

I somehow doubt Ms. Fornero is going to have to give up a damn thing.

Fuck these people. They caused the mess, now they want to pass the buck onto the backs of those who can least afford it.
posted by bardic at 12:19 AM on December 5, 2011 [15 favorites]

If now it is called "sacrifice" what should the last ten years of unwarranted benefit be called? I mean you don't give yourself an unaffordable raise for 10 years and then claim that you are making a "sacrifice" when you have to cut back benefits to where they should have been all along.

In Sweden - which is an EU country not in the Eurozone - the national debt during the past decade has decreased from 54% of GDP to 36% of GDP. This is a result of the banking crisis in 1991 which Sweden bore alone. Every year this country runs a small positive budget surplus which is the result of taxes that would make an Italian cry. Sweden has been "sacrificing" for ten years. Now it's Italy's turn. Suck it up.
posted by three blind mice at 12:20 AM on December 5, 2011 [21 favorites]

If I were the Greek government I'd be quietly encouraging everybody to take their money out of Greek banks, so that there'd be lots of Euros in circulation if (when) Greece leaves the Euro. This might mean that things happen very quickly, because the rest of the EU can't afford to let Greece write unfunded cheques on the European Central Bank.
posted by Joe in Australia at 12:21 AM on December 5, 2011 [1 favorite]

What sacrifices have the bankers made?

A couple points from the factbox accompanying the article:
* Taxes will be increased on luxury assets like boats longer than 10 m (30 ft), private aeroplanes and sports cars.
* A tax on bank accounts, stocks, and financial instruments will be introduced. Italy is in favour of a German and French plan to tax financial transactions, Monti said.

I'm not saying it's enough for the bankers (hell, I'm not necessarily saying hanging's enough), but you asked. And I think a tax on financial transactions is a great way to reduce a lot of the microchurn that provides primarily theoretical benefits to the economy, while making a lot of people wealthy enough they are practically barons.
posted by Homeboy Trouble at 12:29 AM on December 5, 2011

What sacrifices have the bankers made?

They caused the mess, now they want to pass the buck onto the backs of those who can least afford it.

I'm just putting this in for a bit of perspective. From the article:

The package, dubbed a "Save Italy" decree by Monti, aims to raise more than 10 billion euros from a new property tax, impose a new tax on luxury items like yachts, raise value added tax, crack down on tax evasion

There's plenty of pain to go around - the rich are going to get some of it too. Probably not enough, but there's no need to mischaracterise the situation for effect. It's already horrible.

Screw the Euro!

Why, exactly? How is this the Euro's fault, and not the result of Berlusconi's years of mismanagement and obscene corruption? National debt at 120% of GDP?! That's not the fault of a single European currency. That's incompetence.
posted by His thoughts were red thoughts at 12:30 AM on December 5, 2011 [4 favorites]

If the Euro goes down and Italy does too, they are also all screwed. On the other hand, nobody knows what happens then since that would be a failure of the monetary system for an entire continent.

If you read Paul Krugman, he: 1) never thought the euro was a good idea and 2) Thinks all of this is basically a huge waste. Austerity is a disaster economically. What they need is stimulus. But they're already hugely in debt, so what can they do?

In the U.S and countries that have their own currency, you can just have the central bank make loans to the government. Thus, countries like the US, Japan, and the UK which have their own currencies are nowhere near in as much trouble. And keep in mind, UK debt was similar to Italy's before the crisis (IIRC)

Now, so what to do? Well, if the Eurozone were willing to accept inflation, that would solve a lot of the problems. The debts would shrink on their own over time, wages in the various countries wouldn't need to go down nominally and things would settle that way. But the ECB is committed to price stability over the stability of the Eurozone as a whole.

It will be interesting to see how it all pans out.
posted by delmoi at 12:39 AM on December 5, 2011 [2 favorites]

Italy is screwed either way. The debts are denominated in Euros, so they can't be inflated away even if Italy withdraw from the Eurozone. Italy would immediately stop being able to borrow

Not true, Italy's central bank would be able to lend new Italian notes, however that would cause quick inflation, it wouldn't be a problem for the central bank itself.
posted by delmoi at 12:40 AM on December 5, 2011

It just seems insane to me that we aren't just seizing money from the rich to pay these outrageous debts world wide.

The real insanity is that this is just an artificial crisis, caused, in large part, because of fatal flaws in the original design of the Euro. What a clusterfuck.
posted by KokuRyu at 12:44 AM on December 5, 2011

"Isn't it astounding that despite the incredible wealth of resources, innovation and productivity that surrounds us, almost all of us - from governments, to companies, to individuals - are heavily in debt to bankers? If only people would stop and think, how can that be?

"How can it be that the people that actually produce all the real wealth in the world are in debt to those who merely lend out the money that represents the wealth?"

Watch Money as Debt.
posted by phaedon at 12:48 AM on December 5, 2011 [11 favorites]

I (Italian) work in Germany and commute to Italy every weekend. The problem with the non-measures from mr Monti are that they are not tackling the ground problem:
many people dont pay taxes.
You see Italy has a shaky infrastructure, that means cost of production are high. To compensate for this companies hire people with no proper contract, fake "trainee" and so on. This reflects in workers having less money, so that the bricklayer / handyman also work without issuing invoices (no VAT) - they would not be affordable otherwyse. Its a vicious cycle.

So tackling this unpaid taxes is not an easy option - company would simply relocate to France for example (same tax much better infrastructure). Of course, unless
the governement really wanted to tackle this one.
Taxing the one which are already paying and rising the VAT to 23% or the like would just move more people in the "black no invoice no vat" market out of
necessity, get more people like me to get a job in another country, and so on. Preventing them to retire will just have the effect of preventing young people
to get this workplace. Exactly what happened the last 30 years, with the results we know.
In my opinion Monti, which is a Goldman Sachs advisor by the way, decided to slowly bled the italians to death, just to give his employer (Goldman Sachs)
more time to get rid of the Italian Bonds. His view on the italians is (like many other italians expats living in the EU) that they are sheeps, that they can be kicked and harassed, with the exception of the "Elite" - which BTW was not touched by the "Save Italy" package.
posted by elcapitano at 12:48 AM on December 5, 2011 [7 favorites]

"Fuck these people. They caused the mess, now they want to pass the buck onto the backs of those who can least afford it."

The Italians didn't cause the mess. These problems in Europe and in the US are not the result of excessive sovereign debt. That's a falsehood. Italy's debt as a portion of GDP had been declining for ten years before the financial crisis. It is not that much higher than elsewhere and, in any case, Spain's is relatively low and they've been running a budget surplus for a while and yet they're being pummeled, too.

The only reason there's a problem is because of the bond market. And the reason the bond market is doing what it's doing is because the ECB has made it clear that in order to cater to the irrational prejudices of Germany, the countries in the periphery that Germany (among others, but notably) irresponsibly lent far too much money to are going to bear the full burden of unwinding all that transfer of capital. All because Germans are irrationally in deep fear of even extremely modest inflation and like to moralize about debt. If the bond rates were not moving upward, none of this would be happening. And it's entirely possible for the ECB to cause to this to reverse, and to have kept it from happening in the first place.

The bond markets are signaling a complete lack of faith in Europe's ability to do anything other than force the periphery into deflation. And, as we can see in Greece, forcing this on a national population causes great unrest. As the unrest increases, and particularly as lending stops and a national banking crisis develops, then bank runs happen. When bank runs happen, then the only barrier to the country from leaving the Euro, reverting to its own currency and monetary policy, and using a controlled inflation to manage the situation, will evaporate. Thus, current ECB policy of austerity is actually vastly increasing instability in Europe and making a breakup of the Euro more likely rather than less.

One way to think that maybe the Germans are actually being rational was validated at the end of last week—that's that Germany actually wants increased fiscal integration among the Euronations so that it will be first among supposed equals, just as it currently is with regard to monetary policy. I'm not sure if I believe this. Rather, I think that they've been led by their prejudices to a very difficult place and, once here, it occurs to them to use it to the advantage of what they see as an imposition of better fiscal policy on the rest of Europe.

But it won't happen that way.

"In the U.S and countries that have their own currency, you can just have the central bank make loans to the government."

Delmoi, you don't fully undersand Krugman's argument. It's true that Krugman has made the modern monetary theory argument. But his core argument is not that a central bank could lend money to finance a stimulus, it's that a central bank could lend money such that mild inflation and a relatively weak currency would improve the balance of trade. This is exactly what's happening in Iceland. Right now, these periphery countries, due to huge capital inflows for the last ten years, have high wages and prices relative to very low demand. There's two ways in which this can be remedied. One of them is deflation, bringing prices and wages back into line with demand. The other is currency devaluation...which is only possible when they control their own currency.
posted by Ivan Fyodorovich at 12:53 AM on December 5, 2011 [8 favorites]

In practice, liberalisation and austerity are making matters far worse. In Greece, Ireland and Portugal, adjustment packages imposed from the outside but with the collusion of domestic governments have resulted in sharp falls in economic activity, large rises in unemployment and painful social dislocation. Government deficits have risen.

Work by Research on Money and Finance and others has shown that the build-up of debt in peripheral economies was not the result of government profligacy. The fundamental cause has been diverging competitiveness between the economies of the periphery and those of the core, above all Germany. By heavily repressing the wages of its own workers, Germany ensured that there was no chance for peripheral economies to compete, locked as they were into monetary union and unable to devalue their currencies.

This divergence of competitiveness resulted in entrenched structural imbalances between core and periphery, leading to surpluses for Germany and deficits for others. These deficits in peripheral countries were matched by borrowing abroad resulting in accumulation of private and public debt. When the sub-prime crisis struck, public deficits soared as private liabilities were taken onto government books, tax revenues fell and social security payments rose.

Chaos of euro break-up 'price to pay' for failed project; RMF report here (PDF).
posted by Abiezer at 12:58 AM on December 5, 2011 [2 favorites]

Can any more knowledgeable mefites give any examples of when depression austerity measures either

1.) worked to recover a nation's economy; or
2.) were anything other than an attempt for the richest citizens of the effected nations to keep from paying higher taxes?
posted by Navelgazer at 12:58 AM on December 5, 2011 [6 favorites]

Why, exactly? How is this the Euro's fault, and not the result of Berlusconi's years of mismanagement and obscene corruption? National debt at 120% of GDP?! That's not the fault of a single European currency. That's incompetence.

Japan's debt to GDP ratio in 2011 was 234% and it's been in that range for a long, long time.

Are they being mismanaged? No, they have their own central bank. The UK's is 82% and the US's is 99%.

High debt to GDP ratios aren't a problem if interest rates are low. If your interest rates are 1%, then a 100% debt/GDP ratio means paying 1% GDP in interest on the debt. Not really that big of a deal.

Looking at the bond prices for Japanese treasuries, it looks like the interest rate varies depending on the maturity, but most of the short-term loans are only a few 10ths of a percentage point (If I'm reading the chart right -- I've never looked at these before). 30 year is close to 2%.

The "bank of japan lending rate" is only about 0.78%. For the U.S you see a similar thing, although not quite as good 3% for a 30 year bond, 0.95 for a 5 year.

The problem is if these interest rates go up, then things get really problematic.
posted by delmoi at 1:00 AM on December 5, 2011 [1 favorite]

It's true that Krugman has made the modern monetary theory argument. But his core argument is not that a central bank could lend money to finance a stimulus, it's that a central bank could lend money such that mild inflation and a relatively weak currency would improve the balance of trade.

Well, right I didn't mean to say that they would only be lending to the government. That would be one option, though right? If economic stimulus would have a 'multiplier' effect then it seems that borrowing from the central bank and spending on stimulus would be an effective way to get out of the hole: You have both inflation and GDP growth.
posted by delmoi at 1:06 AM on December 5, 2011

Atlas isn't shrugging, he is mugging.
posted by srboisvert at 1:35 AM on December 5, 2011 [3 favorites]

Rich people have to pay slightly more for their yachts (if they buy them in Italy). Everyone else has to starve to death in the streets.

Pointing this out is class warfare.
posted by dirigibleman at 1:39 AM on December 5, 2011 [23 favorites]

At some point there's going to be a world wide rebellion. I'm wagering on this spring. 2012 is going to be 1968 all over again.
posted by infini at 1:47 AM on December 5, 2011

Just to emphasize this:

The reality is that most of the countries currently facing debt troubles were not profligate prior to the crisis. While it may be reasonable to describe Greece as being profligate, the only euro zone country that looks much like Greece is Greece. The other euro zone crisis countries had hugely better finances in the years leading up to the crisis.

Italy, the closest Greece competitor among euro zone crisis countries, had relatively small budget deficits in the years before the crisis. Its debt to GDP ratio fell from 93.7 percent of GDP in 2001 to 87.3 percent of GDP in 2007. In other words, the deficits of these years were completely sustainable.

Spain ran budget surpluses in the years from 2005-2007. Its debt to GDP ratio fell from 50.3 percent in 2000 to 26.5 percent of GDP in 2007. There is no remotely plausibly story of government profligacy here.

posted by the cydonian at 2:29 AM on December 5, 2011 [19 favorites]

A German political-scientist once half-jokingly described the Euro to me as being his country's "third time lucky".
posted by moorooka at 2:30 AM on December 5, 2011 [4 favorites]

My two eurocents, as somebody from "the troubled periphery" of the eurozone:

Blaming the euro, the Euro for what's going on is ridiculous. And quite frankly, I'm not an economist and I generally like Krugman, but fuck him on this subject. His basic argument is that the euro is doom for the Southern Europeans because we are no longer capable of maintaining our competitiveness by successive devaluations. His basic assumption, thus, is that we are constitutionally unable to increase our competitiveness by improved productivity just as the Germans have done. This strikes me as unbearably patronising.

The problem has not been the euro. The euro made it easier to move capital within Europe, which is exactly what it was designed to do. This capital could have been true manna for the cronically undercapitalised economies of the European periphery. Instead, however, it was unwisely lent and criminally mismanaged. In Greece, Italy and Portugal it financed a further increase of the public debt by clientelist governments. In Spain and Ireland it financed ridiculous real estate bubbles and absurd consumer debt.

These problems were well known. A lot of people, not just trained economists, had been denouncing it for a long, long while, but there never was the political will to tackle reality head-on. If the governments in Portugal, Italy or Greece had reined in their deficits in time (both by cutting clientelist spending and by cracking down on tax evasion) the low interest rates of the last ten years would have enabled them to reduce their public debt considerably, and they wouldn't have to do these savage cuts now. And if the governments in Spain and Ireland had taken a few simple measures to put the brakes on real estate especulation (by taxing real estate revaluation, for instance, or checking predatory lending), much of this capital would have gone to more "boring" but far more beneficial investments in improving productivity in the real economy. Instead, real entrepreneurs in those countries remained starved of capital, because they just couldn't compete with the 15-20% ROI offered by the real estate sector.

So these countries aren't victims of the euro. They are victims of short-term thinking, an ailment that goes back precisely to the recurrent competitive devaluations of the pre-euro area. Now we are paying the price. An awfully high price indeed. But hopefully this will be the opportunity to reassess our priorities and start building the basis for sustainable growth, just as Germany has done for the last decade. The real shame is that we could have had a headstart in this. Instead, because of greed, cowardice and short-term thinking, we are instead having to catch up, with a huge burden of debt handicapping us at the same time.

Japan's debt to GDP ratio in 2011 was 234% and it's been in that range for a long, long time.

Japan's public sector debt to GDP ratio in 2011 is 234%, but it is held almost entirely in Japan. Public debt is thus offset by private savings, so that foreign debt isn't high.

Are they being mismanaged? No, they have their own central bank. The UK's is 82% and the US's is 99%.

And neither of those two countries should be feeling too smug right now. If the current run on euro debt ends one way or another, they could very easily be next.
posted by Skeptic at 2:36 AM on December 5, 2011 [11 favorites]

Short version: just one decade ago, it was Germany that was derided as uncompetitive, whereas there was talk of the Spanish Miracle and the Celtic Tiger. Germany did its homework and put its house in order whereas others basked in an illusory economic glory (Only four years ago, Spain's PM spoke of being in Europe's economic Champions League. Now Spain has the third highest Gini economic inequality coefficient in the EU, behind Romania and Latvia). The tables have turned, but life will go on. In a further ten years things will look very different again and people will wonder what the fuck went on in 2011.
posted by Skeptic at 2:43 AM on December 5, 2011 [5 favorites]

Instead, because of greed, cowardice and short-term thinking, we are instead having to catch up, with a huge burden of debt handicapping us at the same time.

If economic policies can't cope with "greed, cowardice, and short-term thinking," then they suck. Those aren't going away any time soon.
posted by mek at 3:50 AM on December 5, 2011 [3 favorites]

It is true to say that the Euro was fundamentally flawed, and that the German's refusal to let the ECB buy unlimited quantities of Italian Government bonds is deeply foolish. However the final ingredient is the poor rate of economic growth. Per capita economic growth in Italy over the last 10 years has been negative; and that was most during a global boom. On top of that Italy has very difficult demographics. With a birthrate of only 1.2, the population will shrink, and the working age population will shrink by more than 12% by 2050. While its true that Italy has sustained high levels of debt for many years, that was in a period when it was growing. If Italy does not grow, I am not sure it can sustain this level of debt under politically realistic scenarios.

This really doesn't have much to do with the banking crisis directly. The credit boom of the last decade simply delayed the reckoning for Italy.
posted by Touchstone at 4:32 AM on December 5, 2011

It just seems insane to me that we aren't just seizing money from the rich to pay these outrageous debts world wide.

There isn't enough of it. Greece, Italy, Portugal, Ireland, and Spain, collectively, owe as close to $5 trillion as makes no odds. There simply aren't enough assets owned by "the rich" to pay that off. What's worse, a lot of the "assets" owned by "the rich" are actually... government bonds! So seizing them wouldn't be asset seizure, as such, as much as it would be default.

And default is certainly something that's been bandied about. A lot of people are, rightly or wrongly, afraid of what that would mean for the global economy. Either way, these governments owe so much that it's increasingly looking as if the only real way to get rid of that debt is to default.
posted by valkyryn at 4:44 AM on December 5, 2011 [1 favorite]

How is this the Euro's fault, and not the result of Berlusconi's years of mismanagement and obscene corruption? National debt at 120% of GDP?! That's not the fault of a single European currency. That's incompetence.

I didn't say it was the Euro's fault; rather, it's the fault of Italians who weren't paying attention to what was happening to their government. Really, you can't be paying attention when you elect a buffoon like Berlusconi - or Bush - for that matter (n the US).

Yes, the Euro increases capital flow because it lessens risk for those who leverage those capital flows - i.e. the banks. The Euro is was all about "trickle down" - i.e. if we increase the transparency of capital flows, there will be more money in the system for investment, and things like jobs and innovation grow like flowers in a highly controlled, well-tended garden. Well, it didn't happen that way, because the people who design things like the Euro don't like to pay attention to how long-=embedded cultural habits and patterns ALSO impact the way that money is used. In fact, what may be viewed by some economist from the German Bundesbank as an inefficiency in Italy, may very well work quite well for Italians.

Yes, the Italians have been irresponsible, in electing a clown to lead them these last years. Now, it's time to pay the piper. That said, Italy does NOT need the Euro, nor does Greece, or anyone else. Italy is going to suffer, in any case. Why should it suffer in a way that the Germans and those who are holding bad debt (who thought they were going to make a killing) be left to control the "austerity" of Italians.

I say GET OUT NOW, and tell the Eurozone to go fuck itself. Stay in the EU, and work out auterity measures that Italians can live with.

As it is, these austerity measures don't even get at the base problem in most of the stricken economies. I'm sick and tired of bankers and policy wonks fucking with the lives of 10's of millions of people. Yes, Italy for the time-being is screwed (so is America, for that matter), but we and the Italians are a diverse, resilient people. We're all going to suffer for taking the good times for granted, but we should NOT be forced into austere positions by the very people who made it possible to fuck ourselves in the first place. Let the Euro fail; let the German banks and the EU hedge funds drop off a cliff! We'll figure it out from there, and don't give us any shit about how anyone is too big to fail! They aren't. All it takes is some balls to start nationalizing these financial institutions, and run them for the benefit of people for a change. Then, once things have settled down, sell them back to the private sector. Screw the Euro, and screw centralized austerity programs. They will ultimately fail, anyway.
posted by Vibrissae at 4:45 AM on December 5, 2011 [2 favorites]

His basic assumption, thus, is that we are constitutionally unable to increase our competitiveness by improved productivity just as the Germans have done. This strikes me as unbearably patronising.

Actually, no, that's not his basic assumption. His basic assumption is that Germany used the Euro to expand its manufacturing sector. Southern Europe wasn't really able to afford German goods on its own, but letting them into the Euro let them borrow money on the cheap, which they did to spend on German exports. If you wonder where all the money that the PIIGS borrowed went, beyond welfare spending the answer is "Germany".

So no, Greece etc. can't do what Germany did, because Germany had the advantage of very foolish trading partners who borrowed beyond their means to spend more than they should have on German exports and a monetary union that facilitated this foolishness. No one's going to do the same for Greek goods, and there's no more monetary slight-of-hand to be had.
posted by valkyryn at 4:48 AM on December 5, 2011 [3 favorites]

three blind mice: If now it is called "sacrifice" what should the last ten years of unwarranted benefit be called? I mean you don't give yourself an unaffordable raise for 10 years and then claim that you are making a "sacrifice" when you have to cut back benefits to where they should have been all along.

In Sweden - which is an EU country not in the Eurozone - the national debt during the past decade has decreased from 54% of GDP to 36% of GDP. This is a result of the banking crisis in 1991 which Sweden bore alone. Every year this country runs a small positive budget surplus which is the result of taxes that would make an Italian cry. Sweden has been "sacrificing" for ten years. Now it's Italy's turn. Suck it up.

There's no need to gloat. Millions of people are going to suffer so that the economic system your welfare depends on can keep functioning. Telling those who are in pain to "suck it up" is not a very pretty sentiment.
posted by Kattullus at 4:50 AM on December 5, 2011 [8 favorites]

The problem isn't the Euro, the problem is capitalism. There, I said it.
posted by fuq at 4:52 AM on December 5, 2011 [6 favorites]

The problem isn't capitalism, the problem is cronyism, corporatism, statism. There, I said it.
posted by noahpoah at 5:04 AM on December 5, 2011 [6 favorites]

Italy does NOT need the Euro, nor does Greece, or anyone else

They do. The EU has been very much the place where national governments outsource unpopular policies to. If they don't have it anymore they'll have to implement necessary reforms themselves. For this reason alone, I predict the Euro will stay.

I plan to come back in 2 years to reference this comment.
posted by dhoe at 5:22 AM on December 5, 2011 [1 favorite]

How would anything other than capitalism fix this? Corruption and waste occurs in every financial system. Capitalism isn't perfect but it's head and shoulders better than any alternative that has actually existed on this planet.
posted by blue_beetle at 5:22 AM on December 5, 2011 [3 favorites]

Capitalism isn't perfect but it's head and shoulders better than any alternative that has actually existed on this planet.

Which definition of capitalism?
posted by infini at 5:26 AM on December 5, 2011 [3 favorites]

I'm an Italian living abroad. I pay taxes there and I pay taxes here, in the US.

You know what one of the biggest problems with Italy is? That a great chunk of the population DOES NOT PAY THEIR TAXES. It's a systematic disaster, because taxes are high (because nobody pays them), oversight is essentially non-existent, punishment for non-compliance is laughable, and "everybody" knows that everybody else is cheating on their taxes, so why the fuck not? It's gotten to the point where I cannot find say, a plumber, who will do work he invoices, just under the table. They refuse to work with you if you want an invoice.

And I don't blame the plumber! I blame the rich, crass assholes who have gotten away with it for 50 years and the government which, having been mostly made up of said rich, crass assholes, let them get away with it for 50 years. Fuck austerity measures. If Italy modeled its tax collecting on the IRS, starting from the top dogs, Italy would not be the country it is today.
posted by lydhre at 5:45 AM on December 5, 2011 [3 favorites]

Germany had the advantage of very foolish trading partners who borrowed beyond their means to spend more than they should have on German exports

You mean the US?

Contrarily to perceived wisdom, while Germany has a trade surplus with many of those eurozone countries, it is largely balanced out by tourism. The real killer in those countries' trade balance sheets is energy.
posted by Skeptic at 5:55 AM on December 5, 2011 [1 favorite]

If the governments in Portugal, Italy or Greece had reined in their deficits in time (both by cutting clientelist spending and by cracking down on tax evasion) the low interest rates of the last ten years would have enabled them to reduce their public debt considerably

Rather, Krugman's point is that Italy or Spain were, in fact, reining in their deficits in peacetime, and that the current immediate crisis, that of the cost of sovereign debt increasing rapidly, is because of a lack of confidence in the bond markets that the economies in question will turn around in finite time, something made worse by the whole set of austerity measures dictated by a 'technocrat' crowd.

All that's been done and dusted, both on this thread and in Krugman's (and like-minded economists') blog posts. Two fascinating points remain unaddressed, though; first, there's this:

The problem has not been the euro.

One prominent Euro-friendly name now disagrees.

The other unaddressed point is about nations pulling themselves up by their bootstraps, and on the general idea of projecting human traits such as selfishness, laziness etc onto large swathes of people bound by common passports. They've been commenting about reviving national endeavours, or a "Blitz" spirt, to take UK in particular in these parts, but honestly, I don't see how that's possible anymore.

Thing is, we've had a generation being weaned away from national identities and nationhood in general; for instance, you're more likely to get into continental Europe's best business schools if you demonstrate a measure of international experience, personal or professional. Even in the UK (which, to me seems the most ra-ra about its national identity among European nations), I believe you have a situation where citizens interact with private entities more than the state in itself; now, whether that's desirable or not is a different question, I'm thinking the more you dismantle the state in favour of a seemingly stateless entity, the more you'd feel disconnected from a common national identity.

Additionally, the rate of change, whether boom or bust, in most communities has been quite rapid, so a lot of people do feel disconnected from a common national sense of wellbeing or distress.
posted by the cydonian at 6:08 AM on December 5, 2011 [3 favorites]

And the overthrow/crippling of social-safetynet nations continues apace.
posted by Thorzdad at 6:17 AM on December 5, 2011

I say GET OUT NOW, and tell the Eurozone to go fuck itself. Stay in the EU, and work out auterity measures that Italians can live with

Leaving the euro is much harder than it sounds, so much so that there is a £250,000 prize available for anyone who can think up a sensible way of doing so.

One significant issue is that it would be impossible to keep the forthcoming euro exit a secret. A vote in parliament would be required at least. Since the new lira will fall in value, anyone with half a brain will try to withdraw their money from Italian banks before the conversion happens, and deposit it elsewhere, for example by buying German government bonds. If enough people do that all at once, that will mean a run on the Italian banking system. Banks would have to shut their doors, people wouldn't be able to pay wages, buy food, etc. Things get complicated after that point, but its all fairly ugly.

(btw this was why the proposed Greek referendum on euro membership was one of the stupidest policy ideas of all time - guaranteed banking collapse - and why it didn't happen).
posted by Touchstone at 6:47 AM on December 5, 2011 [2 favorites]

I always wake up on Mondays with the taste of Apocalypse in my mouth.
posted by Theta States at 6:51 AM on December 5, 2011 [1 favorite]

Per capita economic growth in Italy over the last 10 years has been negative; and that was most during a global boom.

This is the same fallacious argument that says that countries with high debt now are in that position because of profligate government spending pre-crash. Italy's GDP growth was positive until 2007 and the financial crisis hit.

Italy's GDP issue, like their debt problem, was not entirely of their own making, but now they have to appease the very cause of their problem (banks and markets) by adopting austerity budgets. The relationship of these debt-encumbered states has always seemed a little bit like a domestic abuse victim who can't leave their home and is still desperately trying to please their abuser.
posted by knapah at 6:52 AM on December 5, 2011 [1 favorite]

Sigh.

The fundamental reason for this being a crisis is Germany. German banks are basically running on bluff and guile. They simply cannot afford their Eurozone bonds -- esp. the periphery bonds -- to have a haircut.

So, they are demanding more and more austerity to "ensure" that those bonds are made whole, so they don't have to bail out their own broken banks. France is in a similar, but not as bad way.

So, fundamentally -- the German and French banks have made bad loans, and Germany and France are going to do whatever it takes to make sure those bad loans are paid back at 100%.

Then again, they are doing what Japan did, what the UK did, what the US did. Bad banks *must* fail. Holding them up is what is causing this crisis to be unending.

Sweden, held up as a model, did "austerity" right. First, they gutted the broken banks, and respun them out as functional banks with new management. Then, they raised taxes but did not gut spending, to prevent austerity led recessions from starting a vicious cycle of "cut spending, economy shrinks, tax revenues shrink, so we have to cut spending more, which shrinks the economy more..."

End result? Sweden did have several years of some real economic pain, and has come out with a healthy, robust economy while still maintaining a great deal of social services.

Japan? Staggering debt, no growth. The US & UK? Big debt, no growth, more austerity around the corner. The Eurozone?

We'll see if it survives.
posted by eriko at 7:06 AM on December 5, 2011 [13 favorites]

His basic assumption is that Germany used the Euro to expand its manufacturing sector. Southern Europe wasn't really able to afford German goods on its own, but letting them into the Euro let them borrow money on the cheap, which they did to spend on German exports.

I don't often agree with valkryn, but this is dead on. OTOH, I am not so sure about the "foolishness" argument that he proposes but that's beside the point. Anyhow, this comment seems interesting:

...while Germany has a trade surplus with many of those eurozone countries, it is largely balanced out by tourism.

I may be wrong but doesn't dependency theory suggest that tourism is a poor industry that only encourages more of a dependency on the core?
posted by Hypnotic Chick at 7:10 AM on December 5, 2011

The package, dubbed a "Save Italy" decree by Monti, aims to raise more than 10 billion euros from a new property tax, impose a new tax on luxury items like yachts, raise value added tax, crack down on tax evasion

There's plenty of pain to go around - the rich are going to get some of it too. Probably not enough, but there's no need to mischaracterise the situation for effect. It's already horrible.

Yeah I can't imagine anything worse than a higher tax on my yachts.
posted by Stagger Lee at 7:33 AM on December 5, 2011 [2 favorites]

I may be wrong but doesn't dependency theory suggest that tourism is a poor industry that only encourages more of a dependency on the core?

Huh? It's the industry we have, and it is one in which we have quite a few natural competitive advantages. Of course it would be nice to have others (and my larger comment above pointed out that the biggest tragedy is that we missed the bull years to invest in such alternatives), but the whole point is that this is the situation we have now.

The "quit the euro now" crowd suggest that, by competitive devaluation, suddenly those periphery countries will become competitive exporters. My question is, exporters of what? One does not build an industrial base from zero. Factories have to be built, and suppliers found, never mind buyers. That does not happen overnight, especially when credit isn't anywhere to be found.

Argentina managed, with excruciating, traumatising pain, to leave the peso-dollar parity. Ten years afterwards, it has hardly recovered from that crisis. But Argentina is a natural exporter blessed with bountiful natural resources. It is more than self-sufficient in the raw necessities of life, that is, food and energy. With what is Greece going to pay its oil if it quits the euro? With feta cheese?

In different ways, the countries in trouble now missed the opportunity that the first decade of the euro gave them to make their economies more competitive (and the necessity of that was already recognised back then, see the Lisbon Strategy). Much-needed reform was held back by manifold vested interests. Hopefully this crisis will at least have the effect of focussing minds on the subject.

The problem has not been the euro.

One prominent Euro-friendly name now disagrees.

Delors does not blame the euro but the lack of fiscal union. His comments must be read in the light of French domestic politics, with the populist wing of his own Socialist Party launching a German-bashing assault on Chancellor Merkel for pushing for just that fiscal union. Delors' is the warning shot of the grandest of grand old men of French politics against the nationalists in his own party.
posted by Skeptic at 7:51 AM on December 5, 2011 [3 favorites]

empath: At some point there's going to be a world wide rebellion. I'm wagering on this spring. 2012 is going to be 1968 all over again.

Although 1968 was, when all is said and done, a miserable failure. It went after the wrong targets, failed to achieve a lasting consensus, got caught up in the shallow, narcissistic, baby-boomer cult of "youth," and ultimately destabilized things just enough to start the Culture Wars and allow the first seeds of neoliberalism to take root. If we're truly going to have another 1968 next year (and believe me, I'm all for it), we'll need to do things properly.

At least this time, though, there'll be no baby-boomers involved (on the right side of the revolt, at least).
posted by Sonny Jim at 7:52 AM on December 5, 2011 [3 favorites]

Any "austerity" measure that includes short-changing those on a fixed income is austere only in the most austere sense.

It certainly isn't sensible or frugal or likely to reduce overall infrastructure spending in the long run.

One thing is nearly axiomatic, though: the most a government talks up so-called austerity measures, the more you can be sure they don't understand fuck-all about economics.

Folks, this is not about the foxes guarding the chicken coops any more. It is not about the inmates running the sanatorium. It is about dull-witted jocks, usually old, white men, who have stunningly succeeded in their political careers by adhering strictly to the Peter Principle. Most of these idiots have such a weak grasp on the basics of macroeconomics that they couldn't tell their asses from a GDP.

The fact that they make up for this lack of understanding by mashing together "common-sense" notions from microeconomics tells you exactly how fucked we really are when they get together at a G-whatever conference.
posted by clvrmnky at 7:56 AM on December 5, 2011 [3 favorites]

The fundamental reason for this being a crisis is Germany. German banks are basically running on bluff and guile. They simply cannot afford their Eurozone bonds -- esp. the periphery bonds -- to have a haircut.

Not sure this holds water. Banks in France and the UK both have more exposure on a percentage basis, i.e. a bigger proportion of their assets are in PIIGS bonds than in Germany.

Germany is a problem here, but everyone I've read seems to think that it's their obsession with avoiding hyperinflation--Remember Weimar? Because the Germans certainly do.--than the balance sheets of their financial institutions.

Then, they raised taxes but did not gut spending. . . Sweden did have several years of some real economic pain, and has come out with a healthy, robust economy while still maintaining a great deal of social services.

That's not what I heard. Sweden did force banks to take a haircut--and good for them!--but they did reduce social welfare spending too. Pretty significantly. Granted, their benefits are still generous by comparison to the US, but they're not as good as they used to be.
posted by valkyryn at 8:08 AM on December 5, 2011

I know some of y'all don't agree with Krugman and I'm not smart enough to get in a economist throw down, but from my position of stupidity, I wish he were king of the world right now.
posted by angrycat at 8:14 AM on December 5, 2011

* Taxes will be increased on luxury assets like boats longer than 10 m (30 ft), private aeroplanes and sports cars.

The whole idea of taxing luxury items is great in theory but what happens if the wealthy decide to stop buying pretty things? I recently met the owner of a large yacht company who told me he has a customer that would trade in his five-to-seven million dollar yacht every few years to upgrade to the latest and greatest model. When Obama was elected and the economy went south he decided he wasn't going to spend another dime until the evil socialist in the White House was gone. The wealthy yacht buyer still has his billions that he's simply shifted from riskier products to more conservative ones and is still not being taxed at a rate that my income is being taxed at. He simply "suffers" through the next year or 5 with his $7 mil yacht until a republican is elected president.

In the mean time the owner of the yacht company watches his company nearly implode and he goes from employing more than 200 local workers to a skeleton crew of about 30. Sure the owner of the yacht company will be OK but what about the guys who get paid $15/ hour to fiberglass the hull, install the engine and build the molds?
posted by photoslob at 8:16 AM on December 5, 2011

"When Obama was elected and the economy went south"

Oh dear God for fuck's sake, the _Bush_ Recession began in 2007-2008, well before Obama got elected.

"Sure the owner of the yacht company will be OK but what about the guys who get paid $15/ hour to fiberglass the hull, install the engine and build the molds?"

It's a serious thing when somebody loses a job, no doubt (just look at the construction industry). But your wealthy owner-friend is paying historically low taxes (via the Bush tax cuts for Paris Hilton that muslim socialist Obama _extended_).

I'm sorry, but your friend is a fucking idiot and probably a racist to boot. And his taxes should be a lot higher.
posted by bardic at 8:41 AM on December 5, 2011 [2 favorites]

what happens if the wealthy decide to stop buying pretty things?

In the unlikely event the rich stop buying things because of a sales tax, we tax them another way, too.
posted by Hoopo at 9:03 AM on December 5, 2011 [2 favorites]

Oh the burden of power.
posted by a shrill fucking shitstripe at 9:08 AM on December 5, 2011

empath: “2012 is going to be 1968 all over again.”

Sonny Jim: “Although 1968 was, when all is said and done, a miserable failure. It went after the wrong targets, failed to achieve a lasting consensus, got caught up in the shallow, narcissistic, baby-boomer cult of "youth," and ultimately destabilized things just enough to start the Culture Wars and allow the first seeds of neoliberalism to take root. If we're truly going to have another 1968 next year (and believe me, I'm all for it), we'll need to do things properly. At least this time, though, there'll be no baby-boomers involved (on the right side of the revolt, at least).”

1968 was a failure? Really? There are still strikes in France just about every week. Maybe 1968 was a failure in the United States, but upheaval happened all over the world in 1968, sometimes with very different effects than in the US. It's a pretty complicated question.

Incidentally, a good film about 1968 from the French perspective – one of the best films on movements in general ever made – is Chris Marker's Le Fond de l'Air est Rouge, released in English as Grin Without A Cat. [caution: contains war footage] This is a film which I recommend very, very highly, as it is probably the best film about the 1960s that I've seen. Even watching the opening four minutes now sends chills down my spine.
posted by koeselitz at 9:08 AM on December 5, 2011 [2 favorites]

I'm sorry, but your friend is a fucking idiot and probably a racist to boot. And his taxes should be a lot higher.


Not my friend and not disagreeing with you. Just telling the story from his point of view.
posted by photoslob at 9:09 AM on December 5, 2011

The EU has a "no-bailout" clause written into the Lisbon treaty which makes a crisis like this harder to handle than it should be.

Apparently the EU went against the grain of thousands of years of economic history and failed to realise that successful currency unions (for example, federal governments of non-failed states) have always involved a transfer of payments from richer subdivisions to poorer subdivisons. For a supranational entity like the EU this should have been common fucking sense.

But instead they decided to implement this ticking time bomb making the reasoning that "we're only going to let responsible countries into the Euro". Famous last fucking words indeed.

Now let's get back to the biggest problem with Greece. They don't really make things. At least not in bulk. Exports are a mere 25 percent of GDP and most of it is olives, shipping and tourism. There are some textiles and they're starting to get into oil and gas but in general most of their spending is internal. But the plan fact is that they really don't have enough currency coming in. 10% GDP current account deficit? You're pretty much fucked.

Leaving the euro won't help because consumer debt is denominated in euros and interest rates for the Drachma climbing to attract hard currency back into Greece would kill any sort of consumerism left in the country. It would basically be the coup de grâce for Greece's service economy and send it back into the second world.

The only way for this crisis to be resolved is for the EU to come together as a whole and just admit "we fucked up". Then they need to look into investing into Greece so that they can make exportable products and rebuild industry rather than just savagely tearing the country down as petty vengeance for economic mismanagement. Crack down on tax evasion at the same time and ease up pension ages gracefully by all means but you can't withdraw a good percentage of spending that the country has basically relied upon and expect the economy not to go into convulsions from the shock.

But apparently the Germans are too busy nutting out their own Versailles for causing the debt crisis.
posted by Talez at 9:13 AM on December 5, 2011

The problem with the European economy is most definitely not the Euro per se. The problem is in the distribution of who is holding the Euros. As the world becomes more interconnected vis a vis trade, common currencies will become the norm. But noe of this will be ever successful until the problems of greed, hoarding of wealth and monetary corruption are tackled. It's not the Euro or the dollar), these things are convenient economic fictions. The reality is that it's the people who hoard the Euro (or the dollar) to the detriment of the common good.
posted by Poet_Lariat at 9:40 AM on December 5, 2011

"There's plenty of pain to go around - the rich are going to get some of it too."

Poor Silvio B... he's going to have to cut back to only ten prostitutes at a time.
posted by markkraft at 10:48 AM on December 5, 2011

"Poor Silvio B... he's going to have to cut back to only ten prostitutes at a time."

Or as Colbert put it, he'll have to cut back to just bunga parties.
posted by savitarka at 11:28 AM on December 5, 2011 [1 favorite]

Poor Silvio B... he's going to have to cut back to only ten prostitutes at a time.

I have a horrible feeling he's going to appear on Eurovision somehow as a way to fund those prostitutes.
posted by lesbiassparrow at 11:31 AM on December 5, 2011

Leaving the euro is much harder than it sounds, so much so that there is a £250,000 prize available for anyone who can think up a sensible way of doing so.

One significant issue is that it would be impossible to keep the forthcoming euro exit a secret. A vote in parliament would be required at least. Since the new lira will fall in value, anyone with half a brain will try to withdraw their money from Italian banks before the conversion happens, and deposit it elsewhere, for example by buying German government bonds. If enough people do that all at once, that will mean a run on the Italian banking system. Banks would have to shut their doors, people wouldn't be able to pay wages, buy food, etc. Things get complicated after that point, but its all fairly ugly.

Stop the run; nationalize the banks, and cap withdrawals for a brief period of time (a week). Forbid money transfer to German bonds from Italian traders, for a week. Why are we afraid of these asshole financiers?!? The Italian Central Bank can do the rest. Panic scenarios sell nothing but fear. Sweden did this! Why can't Italy? Yes, there will be "sturm und drang", but better a shock that is controlled from the center than a slow bleed that kills European economic diversity. The Euro is, and always was , a banking scam.
posted by Vibrissae at 12:39 PM on December 5, 2011

Just wanted to chime in to underline how here in Italy, the pictures and video of Fornaro's emotions on display, along with a number of other moments from yesterday's press conference, have made a very marked impression.

Already Monti's tone, vocabulary and demeanor are quite a break from the typical public style of politicians that everyone here got quite used to. But to see this kind of unmediated expression of primary emotion, and in such a called-for context - this difference in engagement (for lack of a better term) is really quite a profound change to behold in current Italian political discourse.

Whether these policies will bring the expected changes remains to be seen. But even if all that this government manages to bring about is a shift in the collective perception of what politics might still mean, thus potentially inspiring a different type of engagement on behalf of Italian citizens in their res publica, that could still be a greatly significant contribution.
posted by progosk at 12:56 PM on December 5, 2011 [2 favorites]

If I were a currency trader I would pay people to physically stand outside the delivery docks of firms like Giesecke & Devrient and Note Printing Australia. If I saw any signs of unusual deliveries or extra production shifts I would short the Euro to hell and gone, because it would probably mean a return to national currencies was imminent.
posted by Joe in Australia at 2:23 PM on December 5, 2011

more awful things have been done in italy in the past in order to meet EU requirements -- those of you expecting uprisings will be disappointed.
posted by 3mendo at 2:25 PM on December 5, 2011

Watch Money as Debt.

Or don't, and stay better informed.
posted by one more dead town's last parade at 3:16 PM on December 5, 2011

This isn't a question of resources, it is a question of resource distribution. The entire purpose of our economic system is to distribute scarce resources. If it is failing it needs to be fixed.

People have a few basic needs, food, clothing, shelter and occasional medical care. We should take care of all of these needs to some basic level.

Italians and Greeks are going to go without these things because of debt?

If Italy was a person instead of a country, I would expect it to pay for basic needs first, everything else wil be payed out of future revenue.-if there is any.
posted by psycho-alchemy at 6:45 PM on December 5, 2011