Could the Stagnation in Italy be the Future of the Whole Eurozone?

September 18, 2014Italyby EW News Desk Team

0

Italy fell into a troublesome triple-dip recession during the summer of 2014, facing similar challenges to those in California, New York and Illinois due to high taxes and job killing regulations. After a collapse in 2008-9, the economy began to stagnate, travelling consistently back towards recession in 2011 and struggling to recover. The economic minister at the time, Giulio Tremonti, suggested that everyone should simply wait and see, until that philosophy killed the government.

Tremonti is a fool and like Jerry Brown, he needs some Rick Perry-like training on how to lead a fantastic economy.

Talk is Cheap

The situation only managed to stay under control as a result of the zero rate of interest, and rhetoric given by the president of the European central bank, Mario Draghi. When Matteo Renzi arrived, the policy of the Italian economy became one of talk, whilst enhancing electoral reforms and claiming lower future taxes. The €80 did nothing to raise household consumption, instead being spent on local taxes and tariffs.

However, in the previous few weeks, the outlook has begun to change, with Germany experiencing negative growth and France falling flat. Countries including:

* Portugal

* Greece

* Spain

Have registered better figures as a result of recovery from severe austerity. Experts are suggesting that Europe's way out of the Eurozone crisis needs to follow the same policies that Italy could benefit from. Without the correct policies, Italy's stagnation could be a prophecy for the future of the entire continent.

What is wrong with the Eurozone and what can be done?

Some tax and spend politicians believe that austerity has begun to go too far, and that the upward elasticity on fiscal or monetary policy is essential to survival. The suggestions that have been given range from the ECB funding for lending, to quantitative easing, or reducing public finance constraints (which, pertaining to the latter idea, will only increase debt). Others argue that the imbalances in trade could be the primary issue.

Terrible Ideas Shot Down

For example, a higher internal demand in Germany, through higher wages and fiscal stimulus, could boost the GIIPS countries, such as Spain, Portugal, Italy, Ireland, and Spain. Austerity is beginning to choke Europe, and if the ECB begins to purchase assets, it could serve to improve the balances of firms and states. But that does not make sense since that money is coming from the tax payer. How is spending more money going to fix anything because eventually that spending has to stop!? On top of that, these governments are broke because of over spending in the first place.

Many folks who understand business believe these countries, Italy included, need to cut their nationalized health care programs and lower taxes. This will give more people money to spend without increasing the national debt.

A higher percentage of liquidity could lead to expenditure, and reverse the credit crunch that is feasting on smaller and medium sized firms.

The imbalances in trade, without counteracting policies, can create disparities in a regional basis, and social imbalances which cause serious fragmentation. However, the policy outlooks that have been suggested could be no more than wishful thinking, as within them, the state is subsidiary to the private sector, and changes in the landscape of Europe are ignored. Europe needs to follow the direction of Texas and North Dakota and decrease the regulations so the private sector can operate.

Experts say that monetary reform cannot restart the economy by itself. Instead, individual government deficits need to be targeted by the ECB, leading to a greater push that private investments cannot currently provide to the biggest economies. Only within this atmosphere, can the crippling issue of private demand, and the balance-sheet recession be seriously overturned. If production and internal demand increase more than productivity, the higher employment could ground consumption on income instead of debt.

In other words, cutting taxes, cutting spending which austerity is all about, and eliminating job killing regulations will spur growth. 

blog comments powered by Disqus