Stop The Austerity, It Is Bloody Time To Get Italy Out Of Recession

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Includes: EWI
by: Alberto Abaterusso

The ECB cuts the interest rate. Is this maneuver of monetary policy enough to boost the economy of Italy and get the country out of the recession?

Surely the decision to cut bank rates can be seen as the hope that Europe has understood the difficulties that a country like Italy is facing and the signal that somebody is thinking about the economic recovery, finally.

But it needs to urgently take domestic policy decisions in the field of taxation (first of all), labour and public spending, in addition to the reforms that the country needs.

Families, workers and businesses (especially minor) expect a lot from the new Italian government, whose Prime Minister is the Deputy Secretary of the Democratic Party (Italian: Partito Democratico, PD) - Enrico Letta - who also enjoys the confidence of the People of Freedom Party (Italian: Il Popolo della Libertà, PdL), but at a condition that the pressure of taxation will be reduced starting with the cancellation of IMU tax. IMU is a municipal real estate property tax, ''the first source of tension between the Democratic Party and the People of Liberty''

According to a study of Cgia, the association of craftsmen and small businesses of Mestre city (Italian: Associazione Artigiani Piccole Imprese Mestre), the pressure of taxation in Italy is one of the highest in the EU, but the services provided by the public administration are nothing special.

The Scandinavian countries, for example, are the most over-taxed ones in Europe but the quality level of their services is very high. In Italy in particular the pressure of taxation is 4.5 scores higher than the average of the countries that are member of the eurozone.

Furthermore according to Cgia, among the public services that in Italy work little and badly, there are: the civil justice, the tangible and intangible infrastructure whose deficits are scaring, the health care sector that in many regions of the south of Italy is collapsing and the public administration that in many subsectors still has unjustifiable levels of inefficiency.
But for Giuseppe Bortolussi, the secretary of Cgia, something is not right because the taxes continue to rise, but the national debt to GDP has risen from 120 to almost 130% over the past two years and since the beginning of the economic crisis the number of unemployed people went up by about a million and a half. For Mr. Bortolussi, the course of things needs to be reversed if we want that the domestic demand growths and, most likely, the occupation will follow (click here for the news in the original language version).

The situation of the Italian economy is very difficult as well as the predictions of the various institutes of economic research and statistics. For example Prometeia (Institute of Macroeconomic Analysis and Research) has estimated in its report "Uno sguardo al 2020"' that the GDP at the end of 2020 will still be below the pre-crisis level (end 90s) by about 2% and the expected average growth rate between 2015 and 2020 will not be adequate in order to recover the levels of lost growth. So according to the study about Italy, it will take more than double what it took for Finland to recover. The economic crisis and recession have doubled the Italian unemployment rate compared to 2007 (when it was about 6%). Today it is already almost at the level of 12%, a threshold that will be overtaken by 2014 and it will return to the level of 9% in 2020 (anyway at the same level at the end of 2011) (click here for the news in the original language version).

Conclusion:

What to do to boost the economy in Italy in addition to the bank rate cut maneuver?

  • Reduce the pressure of taxation on businesses and citizens.
  • Unlock the payments that the public administration owe to private companies for services and purchases of goods (about 60% of employment in Italy is generated by small businesses even in times of crisis). Many of these companies have been forced to cease because of shortage of liquidity as banks are not giving loans.
  • Financing social security cushions (according to estimates of trade unions there are about 700 thousand redundancy fund beneficiaries that otherwise would increase the ranks of unemployed people).
  • Pay unemployment benefits to those who cannot find a job.
  • Banks have to behave as banks, that is by accepting deposits from individuals and give loans to businesses: banks have to give loans at reasonable rates also and especially to micro and small companies, which employ 75% of workers in Europe and not just only to the big ones (click here for the news in the original language version).

How to finance the release of payments, investment and the reduction of the pressure of taxation?

  • By reducing the cost of the politics (e.g. reduce the number of the members of parliament and their wages).
  • By eliminating the electoral reimbursements to political parties.
  • By fighting against tax evasion.
  • By reducing the number of provinces and municipalities.
  • By eliminating the waste of money in the armed forces.

While waiting for better times Italians have found a solution to cope with the recession: exchange of goods without money, i.e. the barter.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.