The abyss and our last chance
By Carlo De Benedetti
The opinions expressed are his own.
In a magnificent book published a few years ago Cormac McCarthy imagines a man and a child, father and son, pushing a shopping cart containing what little they have left, along a back road somewhere in America. Ten years earlier the world was destroyed by a nameless catastrophe that turned it into a dark, cold place without life.
There is no history and there is no future. But there is an objective: to head south toward the sea. Mythical places, only vaguely perceived, where there might be salvation. The father is getting older and is ever more weary. But he has the child with him. And he has his objective. He wants to take him southward to the sea. Toward a future that may still be possible.
Today, is the western economy, in particular the Italian economy, that world destroyed by an Apocalypse? Are we pushing that cart, containing the few things we have left, toward a mythical sea of which we know nothing, or even what it is like or where it is?
Re-reading the book I was tempted to think this. To think that those pages, written in 2006, were in some way a prophesy of what we are living through today. Never before has an entire productive system, our own, been so fundamentally questioned.
I have been convinced for some time now that the huge financial crisis of the last few years is the litmus test of a deeper crisis to do with the universal economic order that has lasted through the centuries, with a shift of the balance of world wealth toward new countries.
It is the western economy that risks decline. But it is clear that within the area that we have called the West for more than a century, it is the euro zone that is under the most pressure today. When we talk of the euro crisis, we must first talk about Italy, even before Greece.
Italy has the second largest manufacturing base in Europe. It accounts for a significant share of continental GDP and was one of the founding members of the European Union. A default by Italy would automatically mean the end of the euro. Or at least of the single currency that we have known until now.
Therefore it is undoubtedly important for Europe to solve its structural problems, adopt a common fiscal policy, and set up a real central bank following the model of the Fed. But we Italians cannot avoid our responsibilities. We must sort out the traditional inefficiencies of our economy that have been left on one side for so long.
The formation of a government by Mario Monti, a technocrat held in esteem across the world, has generated new confidence. The leap in credibility compared to the previous prime minister is there for all to see. Monti knows the secrets and the logic of Europe and of the euro better than anybody else, probably even better than his colleagues, German Chancellor Angela Merkel and French President Nicolas Sarkozy. At the conference table of European heads, he is respected and has ideas and contributions to make.
Even for Monti, however, the domestic challenge will not be a walk in the park. There is one risk that I see as more alarming than others. The risk of recession. The latest Organisation for Economic Co-operation and Development (OECD) forecasts for Italy see negative growth for next year of 0.5% per cent. This scenario could get worse when the required austerity measures have been put in place.
I am becoming more convinced every day that we must eliminate the huge inefficiencies, the tax evasion, the waste, and the corruption, but that the idea of austerity for austerity’s sake is dangerous and may lead inexorably to a deep depression.
In some way, that is the error the United States made in the early 1930s, and one which we must not repeat. Either in Italy or anywhere else in the world. It is thus important that the reforms Monti will be enacting be rigorous but that they must also allow for growth. It is a complex task but it is possible.
Let me give you an example: tax reform. For two years I have been recommending a substantial shift of taxation from labor and business to wealth, and a tax on consumption. This would be one way to stimulate development while at the same time giving the state coffers a tax dividend. Today it seems that Monti is going to take this step at last. It is an intelligent way of combining rigor with growth.
The same thing can be done with pensions, the labor market and liberalization. A grand reformist plan must be put into place, a plan that can meet the priorities of cutting Italian debt without killing the driver of the economy just when it needs to start up and pull ahead again.
Merkel described this plan as “impressive”, wishing to highlight the broadness of its scope and the difficulties involved in its implementation. It is not by chance that the reforms that Monti will have to launch in the next few weeks have been on the table of the governments of the past twenty years, no political force having had the strength to actually enact them.
Italy is a country of corporations. It has always been so. From the time after the obscurantism of the middle ages when the Communes and Seigniories brought a taste for initiative and individual success back to Europe. But for a long time now that individualism and spirit of faction have ceased to be a driver of change. In recent decades corporations have become an important factor of conservatism, against which Italian politics, ever weak, has always had to capitulate.
Today it is Monti’s turn. He has in his favor at least two advantages: competence and credibility, there is no doubt about that, but also a widespread awareness throughout the country that this time we really have our backs to the wall. As was the case in ’92, when Italy was on the verge of bankruptcy, there is no alternative to reform and austerity measures. Twenty years ago we made it thanks to men like Giuliano Amato and Carlo Azeglio Ciampi. Today we must make it with Mario Monti.
We are in a devastated place. A place that seems almost impossible to find a sea and a south that we can head for. But we are behind that shopping cart and can only push.
In the cart are the few things that we know we can count on: “Made in Italy”, creativity and intelligence, and an ability to react even in the most difficult situations.
At our side are our children who have the right to a future, as we did after the war. It is for them that we must push with all the strength that we have left. And I think that at the end there will be a south and a sea for Italy, and for Europe.
Photo: From the film “The Road”. Dimension Films.