Italy's debt crisis: Corruption, Bloated Bureaucracy, Poor Productivity

Columnist Nick Squires who has the common sense to write Italy's debt crisis: doomed by corruption, bloated bureaucracy and poor productivity

Spending more than it earns

Despite a still healthy manufacturing sector, which produces the kind of high-quality fashion, furniture and cars that are in increasing demand from emerging economies such as China, the country has for years been spending more than it earns, resulting in a staggering €1.9 trillion (£1.6 trillion) public debt – about 120 per cent of its annual economic output.


Last year, Italy’s output was smaller than in 2005, adjusted for inflation. According to the International Monetary Fund, growth this year will amount to a paltry 0.6 per cent, with an even more miserable rate of 0.3 per cent forecast for 2012.


The country’s dismally low growth is a consequence of corruption, a bloated bureaucracy, an overpaid and cosseted political class, stifling bureaucracy, low productivity and a third-rate educational system.

Italy also performs poorly in global rankings of transparency and competitiveness.

Black economy

Italy’s National Statistics Agency has estimated that the “black” economy makes up at least 16 per cent of GDP.

Tax evasion is almost a national sport. Italians resent paying high taxes when they feel they get little in return – streets are potholed, hospitals are overcrowded, playgrounds for children are often smashed up and covered in graffiti and public transport is frequently shabby and outdated.

On ne peut demander au peuple d’être imputable socialement
quand l’État est imputable de rien.

And they have been set a terrible example – among the plethora of accusations that Mr Berlusconi has faced in his many trials are those of tax fraud and false accounting.


“How do you expect Italians to respect the rules when the law
is ignored by our politicians?”

said Alessio, 42, who sells T-shirts and souvenirs to tourists from a shop overlooking the Trevi Fountain, one of Rome’s most popular tourist spots.

Getting a well-paid job in Italy often depends not on merit but “raccomandazioni” or connections – in other words, it’s not what, but who you know..


The unemployment rate for young people between the ages of 15 and 24 is close to 30 per cent.

The youth are locked out of work by a closed-shop system that affects dozens of trades and professions, from pharmacists and notaries to taxi drivers and licensed tourist guides.

Seeing no prospects at home, young Italians are leaving in droves to seek better opportunities in Britain, the US, Australia and the Gulf, in an accelerating brain drain that will deprive the country of much-needed entrepreneurial talent.

 Même phénomème avec les Grecs et Espagnols.


Italy has more pensioners than workers and currently spends about 14 percent of GDP on pensions -- more than any other country in the Organization for Economic Cooperation and Development (OECD).

By the way, the same public union pension problem exists in the US and it is the cause behind massive state and city deficits. Our system will blow up as well, just give it time.

A fifth of Italy's 60 million people are 65 or older and make increasingly expensive claims on state-paid pensions and other benefits. In fast-growing

Insane Welfare System

Italian industry uncompetitive.

Absent extensive structural reforms, Italian industry will remain uncompetitive. The decade ending in 2010 saw the country’s productivity shrink by 5%, a fatal defect when competing against ever more productive countries. Over that period, American productivity, for example, improved by 20%.

Blessed with few natural resources, Italy’s strength is as a manufacturer. It has the second biggest capital goods industry in Europe next to Germany.

Competing with the Germans, however, requires innovation and productivity in manufacturing, particularly when sharing a currency. Instead, since joining the euro, Italian labour costs have risen 40% compared with Germany.

The Italian brand is a global leader in finished goods, but a major economy cannot rely on consumer products, which are sensitive to global economic conditions. Germany, by contrast, has intentionally kept its wages from rising excessively while relentlessly marketing its products around the world.

Private debt levels are low

Private debt levels are low; Italian families generally spend no more than they earn and mortgages are rare. It has a highly diversified economy and never went through the housing boom-bust cycle that pounded Spain, Ireland and the United States. It is still obscenely rich by global standards. Friday’s Financial Times reported that the net average worth per household is €350,000 ($487,000 Canadian), implying there is enough loot lying around for Italy to save itself.