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Corona Crisis and Eurobonds

  • Thomas Fricke
  • June, 2020
  • 159
  • MACROECONOMICS

The Calamity of Germanys Distorted Perception of Italy.

Perhaps this cliché is the result of many mafia films. Perhaps envy played a part: envy of Italys nice weather, its great food, its sunshine and seashores. There must be something in any case to explain this urge in many Germans to perpetuate the narrative of being thriftier, more serious and more reliable. And of Italians falling severely short in these regards. Even in the present crisis, the most dramatic situation in decades - for which Italy cannot be faulted, mind you - many an expert pontificates along these lines.

This German hubris has long been tragic, but it is particularly so now. Why? Because for quite some time this same old, same old has resonated with Italian reality as eating sauerkraut does with German eating habits, or the trumpeted German punctuality with completing that new airport of ours in the German capital with a delay of now more than 3000 days. But at least there is some humor in these examples.

Not so in the embarrassing dispute about whether or not Germans want to participate in Eurobonds to help others in need - or instead in postulating that Italy should have started saving sooner. This may also explain Germanys reluctance to mercifully support a historic rescue, as witnessed during this weeks summit. Europe is on the brink, not because the Italians are off, but rather a hefty part of the German perception of reality is.

If the Italians are to be blamed for anything at all with regard to their state finances in a crisis like this, it is for having large amounts of old public debts. Its just that this has little to do with the current realities experienced by Italians today, but more so with a phase of derailment which occurred in the 1980s. Even such derailment cannot per se be attributed to living beyond their means, but in large part by suddenly skyrocketing interest rates, as Antonella Stirati from the University of Roma Tre suggests.

All this happened way back when, up to four decades ago. So consider this: If back in 1953 our dear friends from abroad hadnt forgiven some of our debts, wed still be kicking this can down the road today. Besides, from its interwar experience Germany should know well where the road leads when a country is forced to continue paying old debts: In the end the system toppled in the 1930s, a prospect which Italy has been facing for years.

A better way of determining to what extent - or if at all - Italians have actually mismanaged their economy in recent years is to take a glance at the development of the current annual state budget. Since 1992, Italian governments have been running surpluses in their budgets each and every year if the interest payments for serving old debts are excluded. In other words, for 30 years the state has spent less on its citizens than what it has collected from them - with the only exception in 2009, the year of the global financial crisis. Mind you: this is exemplary household management, dear Swabian housewife.

All this led to catastrophe with the onset of the euro crisis when government heads like Mario Monti pushed through one reform after another in response to international pressure - in particular German. Be it a labor market reform, or a pension reform. Dolce vita? Nonsense. According to Stirati, investments in Italy have decreased by 40 percent since 2010 due to these austerity measures. A massive collapse. Investments in education are down ten percent. Thats insane.

All in all, real public expenditure in Italy has stagnated since 2006. In Germany it has, by comparison, increased by almost 20 percent since then. And that, dear wise-guys, cannot be justified as an alleged compensation for previously having spent too much on the Italians. In Germany, the state spends one quarter more per capita on its citizens than in Italy. This has been painfully felt in these past weeks.

All this is escalating into an unimaginable drama in the present corona crisis. Since 2010 Italian governments have cut expenditures on public health, whereas at the same time in Germany year after year more money has been spent per capita. This led to a shortage of desperately needed hospital beds which were not available at the outbreak of the pandemic in Italy and people died who could still be alive today. This is not the direct fault of German politicians, true; however, it is high time to stop this crazy lecturing - its time to start helping solve this disaster, dear Mr. Schäuble. Or to perhaps offer scusi for a change.

Instead, German would-be sages are still, even at this time of crisis and in all seriousness, writing about the Italian ‘addiction to credit. Another fun fact perhaps: In hardly any EU country is private debt in GDP terms as low as in Italy.

Is anyone ...

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