Why Italy is in Trouble.
Wolf here: occasionally I highlight comments that add a different angle or flavor or an illustration or more depth to an article published on Wolf Street. This comment by “Daniele,” an entrepreneur in Italy, is in response to my article, What NCR just Said about the American Retail Quagmire. Or rather, it’s in response to RDE’s comment.
To illustrate the difficult situation the American middle class finds itself in, RDE gave some data on worldwide rankings in median household wealth:
#27 – USA: $38,786 – hardly enough to pay for a minor operation in a US hospital.
#1- Australia: $193,653
#4 – Italy: $123,710 – a country that Americans look down upon as an economic basket case populated by wine drinkers more concerned with spending afternoons with their mistress than getting ahead.
Which then elicited this moving response from our entrepreneur in Italy:
Well, here in the country of wine drinkers, the middle class isn’t that well off either. The figure of $123,000 of wealth per household is mostly due to the fact that people in the past have been very careful with debt.
Unfortunately, we can’t say the same about our foolish government.
Families took the risk of credit only to buy the house where they lived, but apart from that they generally were very savvy, and unemployment in the past was not a huge problem like today. Most families in Italy own their house today and this, I suppose, is where the $123k figure comes from.
In the early 2000s, a new spending trend set foot in Italy: “Buy everything now and pay when you want.” In 2014, the middle class here is much more impoverished than it was 15 years ago. And if that wasn’t enough, since our government isn’t really capable of cutting down expenses and lowering taxes, we had many industries that moved to Asia, and we lost jobs.
With a lower base we have seen a gradual lift in taxes, and at the time when Italy was having trouble refinancing its debt, our government introduced taxes on properties and bank accounts. So, we, the savvy Italians, are paying heavy for our government failures: we have actually a 22% VAT, a 37% minimum revenue tax, 75% taxes on oil products… I have calculated that in my case I pay more or less 67% in taxes.
No we are not in a rosy situation here, but as an entrepreneur I know many businessmen; people here are eager to start something new, but can’t because we are crushed by our country’s debt. If finally we could have somebody with a brain in our government, this country would bloom again. Yes we drink a glass of wine at dinner, but still we are surviving in those hard times, and we are ready to start anew. By Daniele. Here is the article with the original discussion… What NCR just Said about the American Retail Quagmire
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I believe your much more generous social programs are also a factor in creating higher median private sector wealth and generating higher taxes.
I doubt that the Italian unemployed lose their unemployment benefits in 26 weeks which is the case in the US. At that point the US unemployed person must cannibalize her/his savings before seeking public assistance for daily necessities.
I also doubt that Italians face catastrophic debt if they become ill which is also the case in the US.
I know that Italians are not burdened with catastrophic student loan debt since higher education in Italy is free. A large portion of the US population will carry student loan debt to their graves.
If you get fired in Finland you get 500 days 70% of your last 10 months salary. After that social service will pay you about 700 a month. If you aint have any wealth you might get 200-400 on top of that 700 euros. If you have children you get all kinds of special benefits. Why you fellas dont want this northern system also? This is about the same in every nordic country and only Finland lags a bit at the moment. Is divide and conquer familiar for you guys? My household wealth is over couple millions, so I can just chill and let capital (servants) do all the work. =)
With love from wealthy part of Europe. Companies tax evasion and austerity is gonna sink us all. In my opinion central bank should buy eu-bonds straight from eu and eu should give this money for member counties and EU should demand that every member state would create social system, what would be enough for badic needs. Rest of the money could go for infrastructure. That would be a happy Europe.
Dont turn against your brothers. Create the world where you wanna live.
We should take best parts from every counry and create something beatiful.
…And you can study as much you want for free in Finland also.
What you say is absolutely true: basically free, high standard healthcare (at least in most regions) and free college for low income families, low rent pubblic houses for whom has no roof over head etc. Let’s say that here probably lower classes live better than in the US, and I am proud of paying my taxes for those good programs. On the oder hand the government is really too big and inefficent, plenty of pubblic money is wasted or straightly stolen. Anti-corruption laws are too mild and so corrupted pubblic officers thrive. We could have the same or better benefits with lower taxes. The fiscal burden is so high that it is impossible to compete in a global market, I suppose we won’t be able to continue on this path for much longer, something has to change.
Daniele, you didn`t mention black money. I read sometime that 20% of the Italian economy is black. Would that be true?
And if it`s true isn`t it unavoidable to have high taxes and much government debt when so much money is kept away from taxation?
Also a 20% black economy would mean that the average Italian is more wealthy than statistics show.
Don’t confuse knowing how to enjoy the simple things in life with laziness. The Italians have learned how to make the best of a bad situation. This is probably the result of centuries of conquest up and down the peninsula by various invading armies – they have learned to live around oppression from above by enjoying things that governments can’t regulate: family, good friends, good food, good wine. I have never seen people anywhere who can have as much fun as a group of Italians having a meal together.
That’s not to say they don’t get angry with the rampant corruption in their government or the tax burdens they bear, or the ridiculous red tape a business has to deal with. One hotelier I spoke with described the tax situation exactly as Danielle does. He told me, “We need a revolution here to overthrow the government like you had in a America” to which I replied, “We do too”. I think we are heading down the same path as Italy, where the best job you can get is being a government bureaucrat.
I don’t know how anyone in Italy has any money. As Danielle points out the cost of living is very high. I usually check real estate prices wherever I go and the cost per square meter in Italy is worthy of the Upper East Side of Manhattan. Gas costs far more than we have ever paid in America. I think one of the game changers Danielle describes in the early 2000s was the result of the euro. One effect was that Italians got to enjoy the low interest rates that the Germans brought to the EZ, which enabled borrowing. The other was they lost the ability to let their currency float in response to less production efficiency than Germany.
You simply have to love a country that has the “Pausa” – the 3-hour afternoon break, and the “Passeggiata”, where everyone in town spends some time socializing in the town square during the period after work and before the evening meal.
I admire any culture that has a phrase like “Il dolce far niente”, which is one of my goals in life.
When I go back to Italy my family always tells me how lucky I was to emigrate to the US thirty years ago. However their view of life in the US is skewed by a rather 1950s perspective of life in the US, much as many Americans think La Dolce Vita represents life in modern frenetic Italy.
Stereotypes aside life in the US is much better providing a) you don’t get sick, b) you don’t have children and c) you don’t get laid off. Then you’ve got it made.
The US will never develop a decent and caring social network European style partly owing to propaganda (socialized health care doesn’t work, we don’t have a “homogenized society” etc…) combined with the fear of the ill informed white middle class that they will get taxed to provide services to “those people:” blacks, Hispanics and poor whites who are all by definition lazy and grasping. Of course there is no racism in the US.
I’m not saying Italians live “La dolce vita”. I’m saying they’ve learned to enjoy life’s simple pleasures a whole lot better than Americans. Americans invented the frenetic lifestyle.