Italy and National Debt and Everyone Else

I have been inactive. Some catching up to do. I will go straight to the Italian situation because I don’t see it addressed in the media with anything resembling insight based on good information. I am it by default.

It’s human nature I suppose to want simple solutions to complex problems and easy solutions to hard problems. Italy is out of the swamp and therefore, the Euro is saved and therefore, the sterco is not going to hit the fan on this side of the Atlantic. Reason: Old bad boy Silvio Berlusconi resigned. Not much analysis, not much going below the surface by the American press. I have to do their elementary work for them.

First, I suspect there is a monstrous confusion in the minds of many in the media between the accounts of Italy, the state, the Italian republic on the one hand, and the figures pertaining to the Italian economy, on the other hand. The Italian economy comprises a few highly visible major corporations such as Fiat and myriads of small businesses.

The Italian Republic is in debt. The Italian economy is doing well. It’s on the healthy side of economies of developed countries. It’s a lot better than Japan’s for instance. It’s also true that, as elsewhere in Europe, the budget of the state is large relative to the national economy. My bet is that it is smaller than say, in France, or in Sweden, or even in Germany, because the black economy in Italy is so large. The Italian government is just not able to get its grubby little hands on much of what’s generated within Italy. Nevertheless, it’s true that the government budget and the private sector economy influence each other in Italy, as they do elsewhere. That’s not excuse to confuse the one with the other. My wife and I influence each other. It does no mean that we are one and the same. (For one thing, she is both attractive and intelligent.)

Berlusconi did not accumulate the large sovereign debt of the Italian Republic. The debt goes back a long way, some say to the aftermath of WWII. Successive governments just left it alone or they contributed to it.

Technical note: There have been about sixty of those governments. Italy is a parliamentary republic where the head of the largest party that can gather a majority in parliament is automatically head of government. Under that system, there may be many different “governments” with much the same people, the same members of government but in different groupings. Thus the large number of Italian “governments” does not imply that same degree of instability it would in other countries. Moreover, transitions from one government to another are always impeccably peaceful in Italy. It’s a democratic country, period!

Berlusconi had become unpopular with many Italians, of course. That is in large part because of his theatrically amorous peccadilloes, some of them technically illegal. Yet, Berlusconi gave Italy about ten years of political stability, more than any other political figure before him. He was far from being overwhelmingly rejected by the Italian people. He kept his mandate for the better part of ten years. In Italy, as in all developed democracies, that isn’t possible without the assent of the female part of the electorate, by the way. It’s no absurd to speculate that he hit a chord as a showman, in that part of politics that is show business. “He acts like a buffoon but he is our buffoon. He reminds me of my uncle, of my father, of my brother, of me, if only I were braver.”

In the meantime, in tens of thousands of small plants, of small businesses, Italians were doing what Italians have always done. They worked long hours and hard, – unlike the French, for example – and creatively. And again, Berlusconi did not accumulate the public debt of his country and neither, did his generation of Italians, by and large. And unlike the case in France and in this country, for example, he national debt is mostly held domestically. Those creditors who will use it without delicateness know that they will sink their neighbors, their brothers, their children.

Those who dislike Berlusconi, those who think he gave Italy a bad name, are largely those who failed for most of ten years in taking away his majority in parliament. The fact is that when Berlusconi resigned yesterday, he was still the leader of a democratic majority of Italians. If he had achieved that majority and if he had kept it through illegal maneuvers, the problem should have been fixed in the courts. Italy has an independent judicial system. No ambitious prosecutor found the material to indict him on proper government grounds. They had to be content with “rape” charges about a 17 and 1/2 year-old prostitute who never misses a chance to say publicly how much she likes him.

As elsewhere, we find in Italy a class of distinguished, refined people who have read maybe ten or twenty books in their lives and who deplore in the end the workings of democratic political institutions and the results they produce, all in the name of higher values. Does this sound familiar or what?

The Italian debt crisis is not over, nor is that of the Euro. The chicken is coming to roost. The richer European countries lived for thirty years or more higher on the hog than their economies allowed. Many kind of knew it but forbade themselves a straight look at what they were doing and at what they were doing to their children. (That would include my own French brother.)

And here is a political proposition no one else in the whole world dares say aloud: Different European countries’ capacity for self correction is not evenly distributed. The popular impression is right; the stereotypes are largely correct: The closer to the Mediterranean, the greater the capacity for self-delusion in this respect, as in others. The Finns and the Estonians are not Greeks. They will do what needs to be done, count on it. And here is the Delacroix Rule of Olive Oil and Self-Delusion. You can use it in constructing your international investment policies, as short-hand for deeper political analysis:

“The cheaper the olive oil in the salad, the greater the probability that the population is in denial about national economics.”

[Editor's note: this essay first appeared on Dr. Delacroix's blog, Facts Matter, on November 13th 2013]

Please keep it civil (unless it relates to Jacques)

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