Seeking Alpha

aldosantalco's  Instablog

Send Message
Aldo has completed his Double Master of Science in International Management in 2011 from LUISS University (Rome) and Fudan University School of Management (Shanghai). He is currently based in Belgium where he works in the Management Consulting industry. Besides consultancy, Aldo is very focused... More
My blog:
Aldo Santalco
My book:
Technological Platforms
  • VAT Rate: A Political Decision Rather Than A Fiscal Measure.

    The decision about the increase or not of VAT rate from 21% to 22% will have in Italy a strong impact both from an economic and political perspectives. From the economic side, an increase in the VAT rate in order to finance 1 billion euro would have a strong detrimental impact on the private consumption especially during recession period like this we are living. From the political side, the right-wing party gained a big consensus in the past elections thanks to the "promises" to abolish IMU (the tax on residential and industrial real estates) and to keep the actual level of VAT (21%), therefore in order to keep that consensus is repetitively threatening the Government's stability every time the proposal to increase VAT comes out.

    In this article I took a closer look at current and historical levels of households consumption in Italy in order to understand which trend we are experiencing, then comparing it with Germany and the broader Euro Area.

    The first chart below shows the level of households consumption from 1970 to 2012 and provide us with the two very first information we have to take into account in the analysis. The first one is that Italy experienced a continuous growth in household consumption up to the beginning of 2000s, the second is that from the beginning of 2000, consumption levels tended to be stable as result of a decade of slow economic growth if not stagnation. As a matter of facts at the end of 2012 the level of households consumption went back to the levels of the early 2000s (1.028 billion euro Vs 1.024 bln € in 2001).

    Such stagnation in consumption is well depicted by the following graph showing the historical growth rates and comparing them with Germany and the average in the Euro Area.

    (click to enlarge)

    Since the past 10 years Italy, as well as the Euro Area, have been experiencing a crisis in the internal demand characterized by low levels of consumption and investments. Indeed households consumption remarkably deteriorated first with the 2008 financial crisis and then with the sovereign crisis and the exacerbating policies of austerity.

    The real question is then how the Italian Government should stimulate internal demand and boost consumption rather than to discuss about the increase or not of VAT with the well predicted consequences that this action would have on households consumption and the economy in general.

    I think that the attention should be focused on the disposable income of households that has dramatically dropped with the financial crisis and is now continuing to fall.

    The high level of unemployment and taxation are playing a crucial role in the reduction of the real net disposable income of households. Expansive fiscal measures aimed to restructure the taxation on individual and corporate income would have a strong positive impact on the economy being able to invert the trend in consumption and investments. Households and workers will have a higher disposable income that would be addressed to buy products and services therefore stimulating production, investments and consequently lower level of unemployment.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Sep 24 2:55 PM | Link | Comment!
  • Who Is Really Paying For This Crisis?

    How I explained in my previous article the crisis Italy is facing from the past 20 years has all the features to be structural rather than cyclical like the other European Countries (except for Portugal, Greece and Spain).

    However, yesterday the Governor of Bank of Italy announced that the Italian economy is expected to recover starting from the last quarter of 2013 and showing then the "plus sign" at a very slow pace from 2014.

    That's what do we all hope for the coming months along with a more stable political scenario and the approval of crucial reforms that have to do with the reduction of the unacceptable level of unemployment (especially among the young population) and the very high level of taxation and public debt.

    This article is focused on the unemployment in Italy over the past 16 years (1996-2012) and in particular on the rate for the young population (less than 25 years old). They are indeed the real victim of this crisis, forced to leave their own Country to find a job or to accept to work under crazy conditions both in terms of salary (among the lowest in Europe) and working environment (i.e. overtime due to inefficiencies or understaffing).

    Furthermore, career opportunities are not often related to meritocracy and the "performance culture" is something that permeates very slowly in the Italian labor market and the public sector in particular.

    This how the unemployment "evolved" along the past 16 years in Italy:

    (click to enlarge)

    According to Eurostat, in 2012 the unemployment rate in Italy was 8,9% with respect to the 10,1% of the Euro Area and the 5,2% of Germany. The graph above also shows also how the unemployment rate skyrocketed (+82%) during the period of the financial crisis (2007-2012) increasing from 4,9% to 8.9%

    The scenario becomes even worse if we analyse the unemployment among the young generations:

    (click to enlarge)

    Italy has always showed incredibly high level of unemployment (35,3% in 2012), far above the average of the Euro Area and more than 4 times the level of Germany in 2012 (8,1%). In addition, the same steep increase for the unemployement rate among people between 25 and 74 old can be seen among people younger than 25 years old (+74% from 2007 to 2012).

    They are paying a very high price for this crisis without being responsible for that and we hope that this will stop soon and a new perspective of growth will come and will payoff their sacrifices.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Sep 11 2:01 AM | Link | Comment!
  • Italy, What A Strange Country!

    Italy, with its 60 million people, might be one of the best performing and fast growing Country within the Euro Area thanks to its not-tackled potential rather than experiencing a 20 years stagnation if not a recession from the years of the financial crisis. Is indeed a story of continuous missed opportunities for structural reforms necessary to bring Italy back to its past competitive level and fast changing Governments with no vision, more interested to preserve their own positions and voters' consensus rather than reform Italy.

    It would be misleading to consider the economic downturn Italy is facing as only the consequence of the 2008 financial crisis first and the Euro crisis then. The Italian declined started over 20 years ago and does not have to do with cyclical effects.

    Thanks God, Italians have the undisputed ability to always get out from very difficult situations and this has to do with the single individual and his/her entrepreneurship, "commercial" skills and advanced problem solving skills developed by getting used to things that don't work in Italy. Is merit of our people, our visionary entrepreneurs that invest in research and development and open up their business to the global market if we were still able to compete in the business arena and make the "Made in Italy" something to be pride of.

    I say is exclusively merit of individuals because Governments, both left-wing and right-wing ones, have been always very pervasive in the Italian economy representing more an obstacle for the growth rather than a facilitator, by increasing public spending and financing this increase with new taxes always higher, up to the unacceptably-high current levels. As a matter of fact from 2005 to 2012 taxation rose from 40% of GDP to 44% with respect to 41% of the Euro Area (Italy excluded).

    Source: Banca d

    In the last ten years, taxes rose rapidly in order to finance an out of control public spending, that significantly increased in the last 5 years. Furthermore it's worthwhile to say that was not the welfare component to skyrocket during the last five years (is indeed aligned with the average of the Euro Area) but the current government expenditures (interest on debt non included) such as procurements in the public health sector.

    (click to enlarge)Source: Banca d

    (click to enlarge)Source: Banca d

    The depicted scenario suggests that Italy desperately needs structural reforms aimed to cut public spending, reduce bureaucracy and liberalize some sectors so then reduce the scope of the public intervention in the economy (i.e. the dismissal of important stakes the State has in big listed companies is very important for a significant reduction of the public debt and the related interests).

    By the reduction of public spending and the Italian debt, a decrease in taxation levels both on individual and corporate incomes will be possible, resulting then in more disposable income for individuals that will start again to consume and more incentives for firms to invest so to grow and hire new people then.

    Italy has a great potential for growth, it has the resources and the intellectual capital to do it, investors know it and are just waiting that these reforms will finally take place and will create the basis for the recovery of the national economy. As a matter of fact the FTSE MIB grew by 10% one year from now (€ 16.682,21 as per August 30, 2013) and the spread between the 10-years Government bond and the Bund fell to 254,05 from the dangerous level of 600 of 2 years ago.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Sep 01 7:53 PM | Link | Comment!
Full index of posts »
Latest Followers
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.