I have just spent an enjoyable day and a half in Naples, capital of the Italian south
It is a beautifully situated city, near Pompeii and the Amalfi coast, and endowed with some of the most remarkable churches in the world.
In one of these I discovered the tomb of an Irishman I had never heard of before, Luke Concannon born in Kilbegnet in Co Roscommon in 1747, and a Dominican priest, who was the first ever Catholic bishop of New York. He died in Naples in 1810, presumably on his way back to New York after a visit to Rome.
I was struck by how clean and well kept Naples was, contrary to its reputation, and by the number of young people and small children on the crowded streets of the old city.
THE ITALIAN ECONOMY
Italy is facing many economic problems at the moment and I saw signs calling for demonstrations against the policies of the Monti Government.
Economic growth has been lagging in Italy since the 1990’s, and Italy has been hit particularly hard by Chinese competition, particularly in fashion goods. Meanwhile pay has increased far faster than productivity.
Italy had the same balance of payments situation as Germany in 2000, whereas in 2010 Germany has a large surplus and Italy a large deficit.
THE IMPACT OF CHINA ON THE EURO ZONE HAS BEEN DIFFERENT IN ITALY THAN IT HAS BEEN IN GERMANY
This is because Germany has been able to export engineering goods to the expanding Chinese market, while Italy has lost market share to China in its speciality, fashion goods.
In a way, the opening up of China has created unanticipated new imbalances in the euro zone that have arisen since the currency was launched. Some of the German commentary on the euro crisis has ignored this fact.
UNLIKE IRELAND, ITALY ALMOST HAS A PRIMARY SURPLUS
Italy has a big Government debt, but most of this debt dates back to the 1990s, when services expanded while revenues were contracting. Today, Italy almost has a primary surplus on its Government accounts, in other words, it is collecting as much in tax, as it is spending on all Government services apart from interest on past debt. In this regard, it is in a much better situation that the rest of the euro zone.
In contrast, Ireland has a smaller government debt as a proportion of GDP, but has a substantial primary deficit….Ireland’s day to day spending on all services, apart from debt interest, still exceeds its day to day revenue by one of the largest margins in Europe.
Italians have a much lower level of private debt, 130% of GDP, as against 350% in Ireland, and 250% in Spain, Sweden and the Netherlands. There was no property bubble in Italy, in sharp contrast to Spain, something that needs to be explained.
Italy’s problem is that its medium term growth potential is less than that of either Ireland or Spain . This is partly because Italy has an older population, and partly because Ireland has a more modern industrial economy.
Italy has a large black economy (15% of GDP), and it takes ages to enforce a contract or set up a business in Italy. A judicial process that would take 52 days in the Netherlands, 49 days in the US, or 183 days in Spain, would take 630 days in Italy!
ITALIAN BOYS LOSE OUT
Italy’s educational system is open to criticism.
A large number of students, particularly boys, drop out of school with no qualification at all, and its universities fail to prepare students for the jobs that actually exist. This is strange for a country, so many of whose prominent politicians are university professors!
Only 15% of men, and 24% of women, in the 30 to 34 age group have a university education.
As in other countries, the educational system is failing boys more than it is failing girls. Similarly, in Ireland, the unemployment rate among boys is higher than it is for girls.