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Trouble in Belpaese

Signor Menfi is responsible for hiring netturbini, trash removal workers, for the City of Rome. Nowadays, these jobs are very sought after because they offer full employment with benefits such as health insurance, unemployment insurance and a public pension.

Sig. Menfi takes only the cream of the cream. "Most of them have a laurea; they are university graduates."

University graduates as the bluest of blue collar workers.

Signorina Gabriella is a dream. She is young, tall, slim and as pretty as any Cinecittà actress. She is intelligent, friendly and competent. But you won't find her in any upscale night club, fashion show or beach party. It's very easy to look for her: just visit Tivoli, the old town outside Rome. Signorina Gabriella is there, walking the streets of the medieval center with her slow and graceful gait. Signorina Gabriella is a police woman. Ask her for directions and she will answer with her heart warming smile.

Why did she join the police instead of becoming a movie star? Because of full employment, benefits and pension.

If you are young you can't be choosy in the Italy of today. Any job is better than no job at all. Most 30-year old men and women are still living with their parents because they have no income at all or because their income is just sufficient to pay for a small car or a motor bike and an occasional pizza with the friends but not enough for renting an apartment.

Under the pleasant and seemingly placid surface of everyday life in Italy trouble is brewing. Since the introduction of the euro currency in January 2002 life has taken a different direction.

First there was unbridled enthusiasm for the new money. Finally, Italy got rid of the lira, this symptom of chronic inflation, occasionally crashing exchange rates, high interest rates, and a general feeling of unreliability and manipulation.

Finally, Italy had made it into the safe haven of the European economy. Bye, bye, lira, welcome euro!

Overnight, Italy's interest rates were halved. An investment boom could be expected similar to the one experienced in Ireland and Spain. At no time since World War II had credit been so cheap.

Indeed, the boom came. But is wasn't an investment boom: it was a consumer credit boom, American style. All sorts of shady personal credit agencies sprung up and advertised cheap loans; modern versions of the strozzino, the old cut throat money lender. Car ads in newspapers, for the first time, did not flag the price of the car but the leasing rate which looked ridiculously low by Italian standards.

In a country where access to personal credit had traditionally been pretty much a privilege of the rich who did not need it, many now indulged in a credit financed shopping binge. A new car, new clothing, a new house or apartment. Low mortgage rates released the pent-up demand for real estate and led to a housing bubble.

After only a few months, the credit binge was over. The europhoria came to a sudden end when Italians awakened to the reality of euro-induced inflation combined with stagnant incomes and the new additional burdens of personal debt servicing.

Italy was equally hard hit by the old lire debts, mostly in business and real estate. These old debts were still saddled with interest rates well over 10 percent which had been no problem as long as chronic high lira inflation helped to repay the loan. Now, the euro inflation was lower and repayment became onerous. Refinancing would have been the obvious answer to the problem but many loan agreements excluded or heavily penalized refinancing.

Now, Italians are forced to tighten belts and work harder. Major expenses are postponed and a climate of frugality prevails. Only restaurants and pizzerie are still crowded because more work means less time for home cooking.

Dottor Lello is a surgeon by profession. Occasionally, he performs surgery at one of the hospitals he is serving. But his main job is accounting. He has developed a software for hospital accounting. During the day he is touring the hospitals to collect their data; during the night he is inputting and processing the data in his computer.

His inputting work has become so mechanical that he manages to receive friends and talk while he is keying in the data. He has no time to do anything else, for instance sit at a dinner table. He eats a pizza or some other fast food out of the paper. As he also has no time to undress, sleep and dress again: he sleeps an hour or two in his suit and then rushes off again to the hospitals. He does not complain; it's his life and he is lucky to have a decent job.

In this climate of economic stress europhoria has turned into europhobia. The euro-induced inflation shock shows no sign of abating. Complaints about rising prices and tariffs are heard daily. Newspapers are running two-page spreads studded with consumer union statistics showing that the cost of living of the ordinary Italian family is rising three or four times as fast as its income. ISTAT, the normally imperturbable Italian Office of Statistics, had to raise its official inflation rate from 2 to 2.8 percent for the year to September 2003, probably in response to public complaints.

Even local administrations and the national government are responding by planning to introduce price controls and slapping heavy fines on companies or individual merchants who "excessively" raised a price. Of course, the authorities fail to show how they are going to determine which level of price hike is to be considered "excessive."

Experienced politicos know that poor people never start a revolution because they are too busy fighting for survival. Although the tougher daily grind prevents many Italians from caring much about politics, the rumble of a distant earthquake can be felt.

This time it is not the opposition, the left, the trade unions who are most vociferous in complaining. The opposition is fragmented by inner feuding but hopes that the next elections will turn the tables and oust the equally quarreling center-right Berlusconi coalition.

Now it seems to be the borghesia, the educated classes, which are losing their patience with the situation and the system that created it. They want neither left nor right politicians, they want no more government of the traditional type. "They are all crooked and incompetent, they must be removed altogether."

Similar to the public revolt against all politicians which rocked Argentina after the crash of the peso and before the election of Néstor Kirchner, Italy is inching toward a general revolt against all institutions, carried forward by its educated youth (and their frustrated parents).

The young people are offended by the behavior of their government and its hapless opposition. They feel victims of a class of entrepreneurs, bankers and employers who love the cozy world of market splitting and tacit (or secret) price fixing, who hate to give their staff a fair and socially responsible deal, and who feel bad if they cannot raise their prices or tariffs at least once a year.

The euro was supposed to heal many of Italy's festering wounds. Instead, it has opened them even more. On the macro-economic level it is evident that Italy fails to understand that the euro is not a national currency any more. The decades-old game of inflation is continuing as if the euro was the old lira. Italy is addicted to inflation.

Since the supply of euro currency to Italy is limited, the inflation can only succeed if the turnover of money in the economy is accelerated. If money does not circulate faster, inflation will meet with a reduced quantity of sales. That seems to be happening right now. According to ISTAT, the volume of retail sales shrunk by 2.1 percent in the year to June 2003. Companies, institutions and merchants insist on enforcing higher prices and tariffs. They blame their inability to sell as much as before not on their own inflationary behavior — which they consider perfectly normal and legitimate — but on the sluggish economy. "Così fan tutti: if all companies and institutions raise their prices why shouldn't we do it as well?"

The government, apparently unaware of what is going on and why, fails to tell the Italians that the days of runaway inflation are over because the euro is different from the lira. Unless this important message is understood by every Italian there is no way the economy can pull out of the current slump. Maybe it even needs to experience some sort of a crash landing to be disintoxicated from the poison of chronic inflation.

However, not all news seems bad. Lately, Italy enjoyed an unexpected reduction in unemployment to 8.7 percent in July 2003, down from 3.0 percent a year earlier, and the lowest level since 1992. And, surprise, surprise, most of the reduced unemployment benefited the over 50 year olds. A closer look reveals that rising employment in this age bracket is due to a lower number of workers taking retirement. It is not difficult to figure out why: being squeezed by the rising cost of living and afraid of the government's plans for pension reform, they chose to stay on and postpone the cut-off date.

To sum up: the introduction of the euro could have unleashed an investment boom in Italy. The entrepreneurs, however, did not budge. Instead, many of them understood the monetary reform as a chance for making a fast euro and thereby pushing the economy into its present quandary.

Considering the growing unrest in the population and the difficulty of adapting to a currency that tolerates only modest inflation, Italy needs one thing more than anything else: guidance by a competent government.

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—— Giorgio Ascoltone