Italian woes

Last month, my wife and I treated ourselves to a trip to Italy to watch Placido Domingo at the La Scala Opera House in Milan. Accompanied by another couple, we looked forward to immersing ourselves in the city’s old world grandeur for which the Opera is an integral part.

What we experienced was not quite what we expected. Apart from the city being overrun by trash and litter, homeless people scattered about in the hundreds. Gypsies and scammers roamed the tourist zones in search of holidaymakers to victimize. There was a feeling of disorder and quiet chaos in the air.

The situation is so dire that in our hotel, flyers were passed advising tourists to refrain from talking to strangers and to keep personal belongings close to one’s person. Forewarned, we took all the precautions when roaming the streets, even going so far as placing our wallets in our front pockets and using bags rigged with double zippers.

On our second day, three young girls, about 16 years old, insinuated themselves with our group as we made a mad rush to board the subway. There was body contact between us but we thought nothing of it as this is normal in all crowded subways. In the train, my wife felt a strange sensation in her stomach. When she looked below, she saw the hand of one of the young girls insider her bag, just about to snatch her wallet. My wife made a huff. The girls pretended not to speak English and not knowing what we were accusing them of. The rest of the subway passengers did not seem to care. The three girls alit at the next stop.

Understandably, my wife was shaken. As we comforted her, we decided to check our own pockets. Our companion was shocked to discover that she had lost her cash which was tucked inside her double-zipped bag. As for me, I lost my wallet which was deep inside my front pocket. We were all robbed!

Still shaken, another girl approached us and attempted to pull another scam on us. It was clear that tourists in Milan are fair game for petty criminals.

The incident marred our trip. We just wanted to get out of there.

Coincidentally, we met a Filipino friend who was also in Milan along with his wife and six kids. He narrated that in his last visit to Milan a few months back, the whole family was robbed of 13 suitcases while on a pitstop on the way to the airport. The police offered no help not withstanding the fact that the robbers were caught on CCTV cameras. It was as if robberies were part of the Italian experience.

How could the fourth largest economy of the European Union fall to such depths of lawlessness and despair?

We left Milan the following day and proceeded to Verona where we stayed at the beautiful Delser Hotel. The owner, Alfredo Delser, provided us with perspective on the state of Italy today.

With both frustration and resignation, he intimated that the root of Italian woes is the toxic combination of economic stagnation, unemployment, and political indecisiveness.

The Italian economy grew by only 0.9%, 1.5%, and 0.9% in 2016, 2017, and 2018, respectively. It faces zero growth for 2019 and 2020. This is due to several reasons.

First, it is strapped with crippling debt of $2.24 trillion, representing 130% of the country’s gross domestic product. The weight of principal and interest payments prohibits the Italian government from pump-priming the economy.

Second is a dearth of investments. Due to the lack of confidence in the Parliament, companies, local and foreign, are holding off on building or expanding factories. Moreover, banks are up to their necks with bad loans making them reluctant to lend to new ventures.

Third is a drop in consumer spending. The prevailing sentiment of uncertainty has lead households to increase their precautionary savings. Spending on new homes, cars, and consumer goods is on an all time low. Exacerbating matters is that less families qualify for the Italy’s equivalent of conditional cash transfers (called Reddito di Cittadinanza). This has put less money in circulation.

Fourth is low export growth. Italian exports is estimated to have expanded by a mere 2.6% in 2019 to decrease further to 2.2% in 2020. This is because Italian exports are closely linked to the supply chain of the German automotive industry. Unfortunately, demand for German cars is on a decline as consumers migrate to ride-sharing platforms like Uber, Cabify, and MyTaxi.

The unemployment rate in Italy is a staggering 10% (double that of the Philippines) and so the government is desperate to pump-prime the economy if only to create jobs. They planned to do this by imposing more tax cuts (to encourage investments) and embark on an aggressive spending program to be financed by more debt.

Problem is, the European Union prevents them from exceeding a debt ceiling of 2.3% of GDP. Last year, the Italian government already faced steep fines from the European Commission for breaching its debt level limits.

Adding to Italy’s woes is the pressure to increase its Value Added Tax (VAT) to shore up national revenues and balance the budget. The upshot of this is a tighter choke on consumer demand and investments, weakening the already sputtering economy.

The Parliament was able to delay the implementation of VAT increase last year but has no choice but to implement it this year. VAT will increase from the present 22% to 25.2% in 2020 and 26.5% in 2021. This will make it even harder for the Italian economy to eke out growth.

The Italian parliament is controlled by two opposing blocs, the skeptics of the EU known as the Five Star Movement and the pro-EU Lega Nord. Even amid crisis, these opposing parties can’t seem to agree on a unified plan to get the country out of the funk that it is in. Political bickering and indecisiveness is the order of the day in most parliamentary hearings.

The once powerful industrial economy of Italy is losing steam. It is an old economy that is unable to reinvent itself due to the lack of fresh investments in new ideas. Good thing it has its tourism industry to rely on. But even that is threatened by criminality.

As we Filipinos know too well, getting a country’s financial house in order takes years, if not decades. Italy will have to swallow the bitter pills of austerity measures and increased taxes to manage its debts. Only then can it begin to think about growth. Things will get worse before they get better. Italy will come out a stronger economy after this.

Andrew J. Masigan is an economist.