You are independent of all logic Giulio Tremonti!

Italian Finance Minister Giulio Tremonti is a strange and controversial figure.The peculiar phrase in the title to this post in fact came out of the very mouth of Tremonti himself, though they were addressed to an astounded, if now world famous, US economist, Nouriel Roubini, in front of an equally amazed and bemused Davos audience. Since in these kind of matters it is normally better to watch what it is you actually say, just in case in the fullness of time your own words come back to haunt you – as the famous “If you don’t fully understand an instrument, don’t buy it” ones of Santader Bank chief Emilio Botin just did in the Madoff affair – I simply can’t resist pointing out how lacking in logic the present Italian Finance Minister is himself at times.

This post came into my head on reading a report in the Financial Times, about a plan which Italy, currently the revolving (how appropriate this word is here) president of the G7, wishes to present to that august body, with the apparent intention of promoting all that much needed reform in the financial system. I was almost moved to tears by the elquoence and idealism of his words, and of his determination to get to grips with all those horrid “rogue economies”.

We need a new global order,” (Tremonti) told the Financial Times in an interview. “We want to present a new icon – the legal standard – just as once there was the gold standard” A briefing paper he showed the FT begins: “The ‘Legal Standard’ could contain the minimum basic set of rules on propriety of international activities and transparency which the whole international community is expected to respect.” A mix of voluntary and binding codes would be closely monitored with a wide range of tools, including peer review, naming and shaming, indicators and “black listing … for ‘rogue’ economies”.

But then I put my emotions to one side, and thought cooly and calmly for a moment: coming from a minister whose country ranking in the World Economic Forum Global Competitiveness Report lies somewhere near to that of Botswana (with all due respect to Botswana) this does seem all to be rather rich to me, my, my, it really does.

But then I read a report of an interview Tremonti gave last week to the French newspaper Les Echos:

Finance Minister Giulio Tremonti told French newspaper Les Echos in a Jan. 12 interview that Italy may not be faring as badly as GDP figures suggest because they don’t include the so-called black economy, worth about 17 percent of overall economic output, according government estimates.

And I thought to myself, mightn’t an economy where the Finance Minister brazenly proclaims that 17% of output is to be found in the informal economy……well mightn’t someone think that a country whose minister cited this fact as evidence for not doing too badly was itself one of those “irregular” economies that Tremonti wants to set us all so hard to work on “blacklisting”. But then I read the latest utterance from his Prime Minister Silvio Berlusconi, and I understood what not faring badly actually means in a country whose politicians’ grasp of the complexities of modern logical thinking leaves me just astounded:

Italian Prime Minister Silvio Berlusconi said the economy isn’t in “such bad shape” even after the European Commission and the country’s central bank predicted the worst annual contraction in more than 30 years. “It means we will go back by two years,” Berlusconi told reporters today in Rome, referring to the value of nominal gross domestic product. “That doesn’t seem so bad.”

Indeed, Giulio Tremonti does have this much in his favour, he never flinches in the face of having to change his mind. Only today he came out and abandoned his forecast (yes, only today) that the Italian economy would expand in 2009 and informed us that it is about to have the worst contraction in more than 30 years. Of course, it is just mere coincidence that the European Commission yesterday forecast a contraction of a similar order.

Interestingly here, Tremonti came out on 18 December and explicitly attacked the Financial Stability Forum, a group of regulators chaired by Bank of Italy Governor Mario Draghi. In comments to reporters at the European finance ministers and central bankers held in Paris, he insisted it would be “stupid to listen or take lessons from people who don’t understand anything” of the credit crisis. Ironically, one of these people – Mario Draghi – who apparently didn’t understand anything had already forecast on January 15 that the Italian economy would contract by 2% this year (at the time Tremonti was predicting 0.5% growth). When question by reporters about the apparent disparity he limited himself to saying that The Bank of Italy forecast seemed “realistic”, but that the government’s own predictions were not yet ready. I mean, I know Liebniz and Newton did reputedly discover the mathematical calculus separately, but it is curious how the Bank of Italy, the EU Commission and the the Italian Government all come out with exactly the same number within a matter of days. Could this be another example of multiple scientific discovery, or is it just that they are using the same computer software and model.

Go Back To Turkey!

Moving back now to Nouriel Roubini and the Davos Meeting of 2005, I think I’ll let Nouriel himself develop the point. As he put it on his blog at the time:

On Friday I was in Davos in a panel on the “Ups and Downs of EMU” (European Monetary Union) where ECB head Trichet, Italian Economy Minister Tremonti, a few other EU officials and myself were supposed to discuss the following questions: Will EMU collapse in the future? Which country will exit first? What will be the consequences of a break-up of EMU? How to avoid that? And what are the prospects for the Growth and Stability Pact? Unlike the other panelists that ignored the topic and spoke instead about all the good things allegedly associated with EMU, I took the questions seriously by considering some of the problems and risks faced by EMU and the risks of a break-up, especially for the case of Italy.

My remarks caused a stir with Minister Tremonti who interrupted me in the middle of my remarks, went into a temper tantrum and shouted – to the consternation of all participants – to me: “Go Back to Turkey!!”. I happen to have been born in Istanbul…..I politely replied that I was an independent academic thinker being paid to present sensible analyses and arguments. And I also pointed out that Prime Minister Berlusconi, the boss of Mr. Tremonti, had declared in public that the “Euro has been a disaster for Italy“. At which the minister rudely interrupted me again shouting: “You are independent of logic”. At that point I decided to ignore him and finished my remarks. The only additional observation I can make now is that the minister did not just personally and rudely insulted me; he also insulted Turkey and the Turks, a civilized country that is following much more radical fiscal policies and economic reforms than Italy in order to join the EU. Moreover, such a public temper tantrum by the deputy prime minister of Italy – something apparently common to him as the italian press has reported – is a major embarrassment for Italy; Italy deserves better in terms of who should lead its economy and represent him in international public forums. As many members in the audience expressed their solidarity to me and their scorn of the minister tantrum after the end of the panel, this sad episode is a reflection of the sadder state of economic policy in Italy. And the Italian press, starting with the respected Corriere della Sera, has now reported this sad incident and scorned the minister for publicly embarassing Italy in a major international forum. Hopefully, since Italy and Italians deserve better rulers than this buffoon that made a fool of himself in public and embarrassed his own entire country, in April they will vote into the dustbin of history this mediocre individual and his entire administration. Certainly with pathetic rulers such himself Italy would be certainly bound to face economic disaster and eventually be forced to ignominiously exit EMU. Italy and Italians deserve better.

But such volte face from GuilioTremonti are nothing new. Take his new found enthusiasm for the euro, for example – in fact only this week he decried his own Prime Minister’s earlier view that the Euro was a disaster, and asserted that in his opinion the euro project was a “totally sustainable” one. A conviction which now stands in somewhat strange contrast with the large queues which developed outside banks and ATMs in Italy during the first days of the new currency’s existence since due to his then “eurosceptic stance” as economy minister there were marked delays in the introduction of the currency and a huge row about who was to blame in the Italian cabinet. In fact the row lead to the abrupt exit stage left from the Italian government of Foreign Minister Renato Ruggiero who was strongly critical of Tremonti’s antics, antics which were implicitly defended by Prime Minister Berlusconi himself in allowing Ruggiero to be ousted.

And I could go on and on, citing, for example, his recent statements to the effect that further stimulus packages have no point since they simply don’t work, an attitude which looks rather less the standpoint of a man of principle, and rather more like sour grapes from the Finance Minister of a country which quite simply can’t afford any more stimulus due to the imminent threat of credit rating downgrades. The Europen Commission has said it expects Italy’s public debt to rise to 109.3 per cent of GDP this year, up from around 105% next year. This is what happens when you get a 2% contraction, and if we get deflation (falling prices) then things will get even worse without any increase in the actual deficit, and let’s try not to think about what the rising cost of borrowing indicated by the credit spreads will mean.

“It’s not right to support demand by raising debt,” Tremonti said in a news conference in Rome. “The economic trend can’t be turned around with stimulus packages. Judging from the U.S., they have worked very little.”

As I said, I could go on and on, but at this point my head is simply spinning with this whirling-dervish-like crasp of the niceties of logical reasoning, so I think I’ll leave it there. After all, we do have a crisis out there which we need to make the time to think about.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

11 thoughts on “You are independent of all logic Giulio Tremonti!

  1. Speaking as an Italian, I strongly disagree with Prof. Roubini on one specific point: that “Italy and Italians deserve better”.

    No, this government is exactly what this population deserves. It is an accurate mirror of Italian pettiness and sense of entitlement. It will keep us (them?) distracted through crisis and decadence with its loud squabbling and ineffective meddling, punctuated by drops of selfish charity marketed as serious stimuli. This is what was promised during electoral season, and this is what Italians chose with perfect awareness: some unwilling to make any effort for the better; some – having never heard of the prisoner’s dilemma – believing themselves to be voting for their own interests at the expense of some other social group; and a few even swallowing the package hook, line and sinker.

    That the main political alternative in 2008 displayed a nearly identical level of corruption, incompetence, and masturbatory small-mindedness is a very weak excuse; the seeds of such an unbelievably awful ruling class have been sown over years, if not decades, of Italian selfishness and suicidal acquiescence. For my own little part, over the last few years I tried to support what small sparks of civilization could be found in this country, both at a local level and – through the Internet – at the national one. I saw those hopes fail, and will move to Sweden in eight months from now.

    Italy remains a delightful place for spending money, and I would recommend it to anyone for their holidays, but there are few worse places for earning a honest day’s bread or building a family.

  2. > Finance Minister Giulio Tremonti told … that Italy may not be faring as badly as GDP figures suggest because they don’t include the so-called black economy…

    I’ve seen various hints and allusions that Italys GDP figures as measured by ISTAT actually do include the so-called black economy to some extent*. Here is something from MS:
    “In fact, since the output of the underground economy is included in GDP as measured by ISTAT…”

    *Although I would love to see something more concrete describing how exactly it is included by ISTATs methodology.

  3. Hello CurlyWurly

    “I’ve seen various hints and allusions that Italys GDP figures as measured by ISTAT actually do include the so-called black economy to some extent.”

    Oh, thanks for this, I’d forgotten about this point. Yep, I haven’t looked into the details of the Italian methodology, but they did move over to the EU harmonised method only last January, so yes, there must be some component which attempts to estimate the size of the informal economy, and this is included. Both Spain and Greece notably revised up their GDP two or three years ago in an attempt to account for this, the former due to the scale of immigration, and the latter since using the methodology meant debt to GDP dropped by 20% overnight, and this was convenient for them as they were in an excess debt procedure with the EU. The downside was they had to pay more into the EU budget.

    So basically this solves one puzzle which had me scratching my head as I wrote the piece, why “only” 17%, since I have seen suggestions that it is much higher. Well it is obvious now, the 17% is the part which IS allowed for in GDP (ie the opposite of what Tremonti is saying, so he is at least consistent on one point, his ability to get things wrong), and it is the other part (the submerged bit of the iceberg) which isn’t.

    The thing about the informal economy is that it means private wealth is a lot higher than it seems in the numbers, but since Italy’s main problem is government debt sustainability, and by definition the informal economy does not pay taxes, or contribute to pension systems, it doesn’t help Tremonti at all when it comes to a bank bailouts or mounting a stimulus package to stop the economic contraction, irrespecive of whether or not estimates of its size are included in GDP.

  4. Truth be said, Nouriel Roubini and I aren’t the only ones having trouble understanding what it is exactly Guilio Tremonti believes in. The FT’s Tony Barber had this back in April last year on the FTs Brussels blog:

    The first time I interviewed Giulio Tremonti, he was in shirtsleeves and a pair of bright braces, puffing confidently on a cigar in Milan. At that time he was finance minister in Silvio Berlusconi’s centre-right Italian government, and there’s no denying it, he looked every inch the part. Now, as Italians prepare to vote in their April 13-14 election, Tremonti is playing a more populist tune. He’s just published a book, Fear and Hope, which lashes out at globalisation and condemns “the dictatorship of the market”. He also calls for a “new Bretton Woods”. Today’s Tremonti, some may think, has more in common with his protectionist political opponents on the Italian far left than with the Tremonti of 2003. In truth, Tremonti was always fairly suspicious of globalisation, once remarking that Europe would end up in the pot of a Chinese cook if it wasn’t careful.

    The FT also had a piece yesterday:

    which begins:

    Tremonti, Italy’s finance minister, begins an interview pointing out that Italy has the world’s third largest public debt, after the US and Japan.“Some can increase their deficit and debt. We cannot,” he says, noting the fiscal stimulus packages of France, Germany and the UK. “We are obliged to be very conservative. Our philosophy is to be careful.”

    Oh, really!

  5. Mr. Edward, your article is full of acrimony toward Italy and especially our minister Giulio Tremonti. You don’t look like someone who really knows Italian situation. I dont’ know whether what you are saying is true on not (maybe not) but you are indeed very clever by making such a picture. Is there under your so beautifully described painting, a hint of Romano Prodi’s era missing? If so, I suggest you to go and search for some biografy of your hero, or better ask some of your friends. You could have admired him during his presidency at the European Commitee. Do you want to take him back? Should I refresh your memory about Prodi’s performances during the IRI presidency or you alredy know them? Do you want to talk about Aldo Moro kidnapping and killing by the Red Brigades and related Prodi’s involvement?
    Prodi was the one (along with Ciampi) who strongly wanted the Euro and they succeded.
    It’s not correct what you say about Tremonti and Berlusconi that they consider this a drama. In fact Tremonti never complained about the EURO but “the way” the Euro was introduced. You don’t know this do you? I was there and maybe next time I could tell you this story.
    You are right we (Italians) deserve what we have and now we have Giulio Tremonti and Silvio Berlusconi. They don’t belong to the circle of your friends and this fact confirm that we chosed well.
    Excuse me for my elementary English. I think I made myself to be understood though.

  6. Hi Antoni0, and welcome.

    “Mr. Edward, your article is full of acrimony toward Italy”

    Well I hope not, since it is a country whose culture I respect, and anyway acrimony is a feeling I don’t recognise in myself.

    “especially our minister Giulio Tremonti.”

    Again, I just think he is a bufoon basically, no acrimony, honest injun.

    “Is there under your so beautifully described painting, a hint of Romano Prodi’s era missing? If so, I suggest you to go and search for some biografy of your hero”

    I’m sorry, you’ve lost me with your logic here. If the answer to the first question was no, which it was, then how could Prodi be my “hero”.

    I am a non political economic analyst, and I am simply trying to understand (perhaps rather ironically, irony I would recognise in myself) how the Italian government is going to save itself from sovereign default. I consider that would be a very bad outcome for the Italian people.

    If I am defending anyone in the post it would be Mario Draghi (and indirectly Nouriel Roubini, to whom Tremonto was quite unnecessarily rude, when he raised his concerns about Italian sovereign default risk). I am want to defend central bankers when I think they are stupidly attacked, even if I disagree with them. Like Socrates I think we live by the laws.

    “In fact Tremonti never complained about the EURO but “the way” the Euro was introduced.”

    Well, this is the sort of logic I don’t understand, since he was the person who introduced it in Italy, and there were long queues waiting to get hold of the notes and coins which had not been made ready. This was the only eurozone country to have this problem, so you can see, he didn’t agree with the way he was doing things, and this is the kidn of logic I don’t understand.

    Also Silvio Berlusconi did describe the euro as a “disaster” – which it may or may not be, this is not my point – but all you can half expect of people is that they are coherent and consistent. Italy deserves better. Italy also deserves better than Romano Prodi, but this was not my point today.

    Having said that, I am an independent, non political economic analyst, who is concerned to find a way that Italy can avoid a soverign default. If you find that acrimonious, I’m sorry. According to what logic does someone who takes and interest in and cares about a country count as one of its enemies?

    Anyway, if you are interested, and want some objective analysis of Italy’s economy, you could try reading my Italian Economy Watch blog.

    Best wishes,


  7. Hi Edward, thank you for the reply.
    Again you are missing something. It wasn’t Tremonti who introduced EURO in Italy but Prodi.
    Tremonti and Berlusconi that time (2001) were not in charge.
    They always complained about the “way” because Tremonti always worried firstly about the lack of little euro bills.
    Italians were used to coins with very less value. The biggest Italian coin was 500 Lira (EUR 0,25). Suddenly we got our pockets full of 2 Euros. This was a big psychological mistake. We do not understand why Americans have 1 Dollar’s bill while we have the smallest bill (EUR 5,00) equivalent to almost 7 dollars.
    Secondly Prodi accepted (against Tremonti’s opinion) a disastrous exchange rate (Lira=EUR 1936,27). Better not accept, better fight for a more convenient rate.
    Thirdly, Tremonti asked for a longer circulation of both currencies but Prodi didn’t listen and decided 1 year only. How it can be? Still after 3 years I was comparing in my mind, any price with the corresponding value of the old currency and I’m not an old man (was 43 at that time). Could you imagine how our senior citizens dealt with the new Euro? Why Prodi wouldn’t make at least 3 years?
    Tremonti asked for a more strictly inspection on the marked in order to keep the prices under control. Nobody listened.
    In a couple of years our money started to lose value because the prices out of control. Every shop was left to their own conscience into the price changing. The result was that any price that the year before was 1.000 Lira, slowly (but very fast) became 1 Euro.
    I remember that when I had a 20.000 Lira bill in my pocket I could go out for the evening and feel comfortable. I could take my wife and my son to a pizza restaurant and spend my 20.000 lira safely.
    Today (but even after 3 years after euro introduction) I couldn’t go out having in my pocket only few euro coins. And before taking my family out I would fill my wallet with EURO bills.
    Workers who in 2001 were earning 2 million lira were commonly considered well-off people. A family where husband and wife were earning 2 million lira each, they were considered a very economically good family. Today the same family earning EUR 1.000 + EUR 1.000, they are considered poor and there is a plan from Berlusconi’s administration to economically help these families.
    You can argue that 8 years are passed meanwhile and the inflation and this and that.
    No my friend we suddenly had these problems not today.
    And these problems had been forecasted by Tremonti and Berlusconi.
    This are few of the reason why they say the Euro was a disaster.
    Of course we feel safe under EURO because we also recall the troubles given by our old Lira, but please let me shout a big “” Prodi.

  8. Hello again Antonio,

    I may not agree with you on a lot of things, but I want to thank you for one thing, for pointing this out to me.

    “Again you are missing something. It wasn’t Tremonti who introduced EURO in Italy but Prodi.”

    I think I was completly confused here, since I was mixing up the Renato Ruggiero incident (from 2002) with the very lamentable way the euro was introduced in January 2001. You are obviously right since Berlusconi was not prime minister again till May 2001. On this count I would have to absolutely agree that it was the left government of Giuliano Amato who were responsible. Since I am not partisan though I can simply say that this is yet another example of Italy not getting the government she deserves.

    I mean, why do your institutions have to be so poor, and so inefficient? It isn’t just me saying this, the competitiveness indicators (like the Davos one I cite) all suggest this, and indeed it was this problem which lead me to let off some steam with Tremonti, and his proposals for financial reform, since I think he would be better advised to put Italy’s problems in order first.

    I mean, I spend a lot of time gathering economic data from the various national statistics sites, and I simply cannot understand why the offices in East European countries like the Baltics, the Czech Republic or Hungary are so much better than the ISTAT one.

    Just look at the English version of their site:

    Now go and have a look at Estonia:

    Not only is everything accessible in the latter, and classified according to normal standards, the data published is much more informative. People have been complaining of late about the Chinese tendency to massage data, but do you realise that ISTAT still don’t publish a price corrected version of the retail sales data, so we have no real idea of the the changes from year to year (except that I go to the trouble to make my own index).

    I mean, why should one of the older and richer members of the Union be so backward in coming forward? I think neither the right nor the left can escape criticism here, since they have both been in government for long enough periods to do something.

    And I won’t even begin to get started on pension reform.

    Well on all this we are unlikely to agree completely, but still, nice talking to you, and thanks for correcting me. And believe me, if I spend this long talking about this kind of thing it is because all this (and Italy) matter to me. You have no idea how much of a pleasure it is for me to go to the cinema and see a VO Italian film, even if you possibly would find some of the dircetors I appreciate rather suspect 🙂 – but then art is art. My god, I even have a copy of Gabriele D’Anunzio’s Il piacere around the house somewhere.

    So I don’t just want to sit back and watch Italy go down the tubes, I really don’t.

  9. Pingback: In Need Of Stimulation, Or How To Do Things When You Are Busted Flat. | afoe | A Fistful of Euros | European Opinion

  10. “I mean, why do your institutions have to be so poor, and so inefficient? It isn’t just me saying this, the competitiveness indicators (like the Davos one I cite) all suggest this, and indeed it was this problem which lead me to let off some steam with Tremonti, and his proposals for financial reform, since I think he would be better advised to put Italy’s problems in order first.”

    Now, in November 2009, maybe we have some more elements to deal with these statements. Italian economy (GDP) has surpassed the UK one in october. “Il tempo è galantuomo” (Time is a gentleman) we say in Italy.
    Anyway I agree with you on many points: Tremonti is often illogical and quite odious as well. But he was right. He pointed out that many “competitive” economies, strongly growing before the financial crisis, was inflated by a massive private debt limit. We are talking about Ireland, UK, Spain and, of courese, United States, the champions among very competitive countries. In July 2009 in accordance with ECB data, the bank loans to english families amount to 23.300 euros, to 19.200 for spanish families, to 32.800 for irish families, to 31.600 for american families and… to 8.100 euros for italian families. In other words we are not competitive because we are very prudent. This is the meaning of the apparently illogical statements of Giulio Tremonti’s and of many italian finance ministers before him. Regards.

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