Tag Archives: Italy

Between A Rock And A Hard Place

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US Economist Arnold Harberger once asked what Thailand, the Dominican Republic, Zimbabwe, Greece, and Bolivia had in common that merited their being placed in the same growth regression analysis. I can’t help having the same feeling about Germany, France, Italy and Spain. As I indicated in a post on A Few Euros More yesterday, its sometimes hard to see the common thread.

Be that as it may, this post is only about one of the ‘big four’: Italy. As I say in the Afem post, Italy is bucking the trend. Unfortunately it is bucking it in the wrong direction.
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Promises, Promises, But More Than A Technical Detail

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Well the eurozone government deficit problem has hit the agenda with a thud again in the last few days. Yesterday the FT ran a story about how the ECB has decided that it will not accept government paper (bonds) in the future from any country which has not maintained at least an A- rating from one or more of the principal debt assesment agencies. (Dave Altig at MacroBlog has also covered the story here, and Nouriel Roubini here). Today the FT has another story about how Trichet has confirmed the policy, and how the Commission too plans to get tough (well they would, wouldn’t they, since this may now become a credibility auction).

This topic must appear appaulingly technical and yawn-provoking to the non-economist. In fact nothing could be further from the truth. Let me explain a bit.
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The Italian Government Has A New Crisis

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Germany isn’t the only EU country where serious ongoing economic problems are leading to political gridlock. Italy’s situation is no better, and arguably worse. This ‘worse’ aspect was pushed into the headlines yesterday by the resignation of Economy Minister Domenico Siniscalco. This is sending shock waves throughout the entire Italian political system. It still isn’t clear at the time of writing whether the Berlusconi government can survive, especially given the gravity of the underlying problem which is the need to make severe budget cuts when Italy is in a prolonged recession and elections loom sometime next spring.

Essentially Siniscalco quit because of continuing government infighting over the 2006 budget and over the administration�s failure to force the resignation of Bank of Italy Governor Antonio Fazio following the scandal produced by accusations that he showed bias against Dutch bank ABN AMRO during a takeover battle for the Italian Banca Antonveneta SpA.
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Not sentimental, and no France

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Until a couple of days ago, I was very nearly incommunicado for two weeks. We took the kids to Italy on holiday, you see, and found ourselves in a place with no television, no internets, not even mobile-phone reception. The tiny shop at the site doesn’t even stock English-language (or any other non-Italian) newspapers, and my Italian is, if that is possible, even viler and more vestigial than my Spanish. I found this isolation very pleasant altogether, and in some ways regret having to come back into the connected world.

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More Theories

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Very hard to interpret the information we are receiving right now. Much of it may well be aimed at the terrorists themselves so it is also perhaps better not to dig too deeply.

There are, however, a number of rival (but possibly) compatible theories. One of these, and it is the one I am following most closely (possibly for obvious reasons) is that of the Spanish connection. Now following this along the road a little (and just in a kind of ‘what if’ sense) it may not be entirely without relevance that raids were carried out in Italy on Saturday. (The FT today also also has a piece on the Italian raids. What stands out is the ‘cover’ provided by mass illegal immigration for such groups. I am in favour of increasing economic migration to meet demographic needs, but this process needs to be regulated and orderly, here we can see one more reason why). It is just me speculating, but the rapidity of the raids in Italy may relate more to the fact that there are ties between the Spain-based Jihadists and the Italian-based ones than to the immediate threat of an attack in Italy. This article contains the following information sourced from the Italian newspaper Corriere della Serra:

“In 2003, the Italian Police and the carabinieri from the Special Operations Unit uncovered a link between the alleged Italian cell and its extremist associates in a number of European countries, primarily Germany, Spain, and the Netherlands. The Milan probe revealed that “young North Africans were ?trawled for’ in the European mosques, given money, and supplied with a visa?” to travel to Iraq to conduct suicide operations.”

This connection is loose, but is one possible route. Those who feel there might be an Iraq connection (and the lack of any explicit information about the explosives might point to this: this origin would be politically sensitive) would do well to note that the Italian net appears to have close links with Ansar Al-Islam which is based in the Kurdish zone, and was once host to none other than Abu Musab Al-Zarqawi. As I say, I wouldn’t even call this a conjecture, just some isolated pieces of information which are worth keeping track on, irrespective of whether or not the people mentioned were implicated last Thursday.

Finally, the NYT highlights the way in which the kind of terror we are seeing is in fact bringing Europe closer together:
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Eurozone Outlook

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There is a pretty mixed bag of numbers coming in at the moment. The German economy shows some signs of a recovery of activity (here), as is the French one (here). It is important to understand however that trend growth in Germany is now extremely low, and the economy is very export dependent. The underlying performance of the Frech economy is essentially much better. However, the sick man of Europe continues (and will continue) to be Italy (here)

Levels of business activity in the Italian services economy continued to fall in June. However, rising from 47.3 in May to 48.9, the seasonally adjusted NTC Research/ADACI Business Activity Index indicated that the rate of contraction had eased and was only marginal.

A month-on-month decline in new business to Italian service providers was recorded for the third successive month. Furthermore, the rate of decline quickened again and was the sharpest in the survey history. Panel companies reported that demand for their services had continued to suffer as a depressed domestic economy led to subdued client spending.

Service providers reported that diminishing levels of new business had freed up capacity, leading to the sharpest reduction in backlogs of outstanding work in the seven-and-a-half years that data have been collected.

Employment levels in the Italian service sector fell for the fourth straight month in June. The rate of job shedding was again only marginal, although slightly sharper than in May.
Source NTCResearch

Dirty Deeds, Not Dirt Cheap (Reprise)

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For 19 American intelligence operatives assigned to apprehend a radical Islamic preacher in Milan two years ago, the mission was equal parts James Bond and taxpayer-financed Italian holiday, according to an Italian investigation of the man’s disappearance. …

During January 2003, they were regular patrons at the Hotel Principe di Savoia in Milan, which bills itself as “one of the world’s most luxuriously appointed hotels” and features a marble-lined spa and minibar Cokes that cost about $10. Seven of the Americans stayed at the 80-year-old hotel for periods ranging from three days to three weeks at nightly rates of about $450, racking up total expenses of more than $42,000 there. …

Hotel records show that all but one of the Americans allegedly involved in the abduction stayed in Italy for a few days afterward. Four of them checked into luxury hotels in Venice. Two others spent a couple of days in the Italian Alps before leaving the country.

Italy Referendum Campaign Launched

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The Italian Northern League have, as promised, launched their ‘bring back the Lira’ referendum campaign. Whilst at this stage there is something vaguely comic in all this, remember it is a wild card which will be floating around if Italy’s economic crisis worsens.

The Italian Northern League party launched a campaign to revive the lira at an 85,000-strong rally of its supporters on Sunday (19 June) The party, which holds minister posts in Silvio Berlusoni’s government, called for a revival of the lira as a “parallel currency” to the euro, which would remain the currency of the state budget, tourism and foreign trade. Under Italian law, a referendum must be held if half a million signatures are collected.

More News From Italy

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Things really are starting to hot up: The European Commission said Wednesday it is investigating the reasons why Italy’s central bank intervened in foreign takeover bids for Italian banks.

The European Union’s head office said it had received a letter from the Bank of Italy explaining its actions in the recent takeover bids by the Netherlands’ ABN Amro NV for Banca Antonveneta SpA and Spain’s Banco Bilbao Vizcaya SA Argentaria for Banca Nazionale del Lavoro SpA.

The Bank of Italy monitors the country’s banking sector and has the power to veto all mergers and acquisitions. However, EU open market rules mean banks from other member nations should be allowed to operate in the Italian market under the same conditions as Italian rivals.

The Bank of Italy Governor Antonio Fazio has rejected criticism that he favors domestic players over foreign banks, insisting last week that regulatory decisions are “neutral with regard to the nationality of the players involved.”