Concluding remarks

When and how could we get out of the economic crisis that has hit the world in 2008?

The answers are not discounted, of course, because the period of time that should be considered for a prediction is short and there is the real possibility that something happening today is totally unpredictable but the chief economist of the International Monetary Fund, Olivier Blanchard said that will pass at least 10 years to come out from the crisis. The new world in which it moves the global economy is so precarious and without guides. Faced with the slowdown in Brazil, Russia, India, China, with the structural crisis of the Eurozone and the economic challenges that the United States are facing,  the uncertainty is the only constant.

The idea of Blanchard is that now there are no more excuses. The Eurozone has not eliminated the risk, increased starting in 2010, with the first request for assistance from Greece, a generalized collapse of the euro. After Athens, came the bailouts of Ireland, Portugal and now Spain. Then, perhaps, will come the Italy's one.

Our study and research to constantly update the blog that we have created about the crisis and its possible causes has helped us to give to our readers a general idea of the critical situation in many European countries, including Italy. We have collected a series of explanations, events, numbers and video in order to understand what is happening to the European economy, as well as worldwide. The work that we have done was very important to increase our knowledge on a topic that concerns us in terms of our lives and our future.  Although from our analysis results  a very difficult situation we need to find a way out. Unfortunately, the road is still long and we need a lot of patience to overcome the crisis, this because between all the several measures adopted by each countries, presently none seems to be the right one to address the situation in the best way.

Our goal hasn't been to provide solutions, but to arouse reflection in our readers about this topic, sometimes trying to be a bit ironic. As some economists say it's possible to sort out of the crisis and to return to a climate of balance. The problem is to understand when it will happen and if ten years, between 2008 and 2018, are enough. Hopefully so.

Where can we start? A possible idea could be to focus on innovation, the ability to innovate the organization of work, the way we produce, the technologies and the materials to be used in a sustainable way.

To conclude our blog’s work we have decided to share some funny cartoons.

 

 

 

Post 11_Global Investment Conference - Mario Draghi, President of the European Central Bank :

Global Investment Conference - Mario Draghi, President of the European Central Bank :

1: I asked myself what sort of message I want to give you; I wouldn’t use the word "sell", but actually I think the best thing I could do, is to give you a candid assessment of how we view the euro situation from Frankfurt.

And the first thing that came to mind was something that people said many years ago and then stopped saying it: The euro is like a bumblebee. This is a mystery of nature because it shouldn't fly but instead it does. So the euro was a bumblebee that flew very well for several years. And now – and I think people ask "how come?" – probably there was something in the atmosphere, in the air, that made the bumblebee fly. Now something must have changed in the air, and we know what after the financial crisis. The bumblebee would have to graduate to a real bee. And that's what it's doing. The first message I would like to send, is that the euro is much, much stronger, the euro area is much, much stronger than people acknowledge today. Not only if you look over the last 10 years but also if you look at it now, you see that as far as inflation, employment, productivity, the euro area has done either like or better than US or Japan.

2: Then the comparison becomes even more dramatic when we come to deficit and debt. The euro area has much lower deficit, much lower debt than these two countries. And also not less important, it has a balanced current account, no deficits, but it also has a degree of social cohesion that you wouldn't find either in the other two countries.That is a very important ingredient for undertaking all the structural reforms that will actually graduate the bumblebee into a real bee.The second point, the second message I would like to send today, is that progress has been extraordinary in the last six months. If you compare today the euro area member states with six months ago, you will see that the world is entirely different today, and for the better. And this progress has taken different shapes. At national level, because of course, while I was saying, while I was glorifying the merits of the euro, you were thinking "but that's an average!”, and "in fact countries diverge so much within the euro area, that averages are not representative any longer, when the variance is so big". But I would say that over the last six months, this average, well the variances tend to decrease and countries tend to converge much more than they have done in many years - both at national level, in countries like Portugal, Ireland and countries that are not in the programme, like Spain and Italy. The progress in undertaking deficit control, structural reforms has been remarkable. And they will have to continue to do so. But the pace has been set and all the signals that we get is that they don't relent, stop reforming themselves. It's a complex process because for many years, very little was done – I will come to this in a moment.

3: But a lot of progress has been done at supranational level. That's why I always say that the last summit was a real success. The last summit was a real success because for the first time in many years, all the leaders of the 27 countries of Europe, including UK etc., said that the only way out of this present crisis is to have more Europe, not less Europe. A Europe that is founded on four building blocks: a fiscal union, a financial union, an economic union and a political union. These blocks, in two words – we can continue discussing this later – mean that much more of what is national sovereignty is going to be exercised at supranational level, that common fiscal rules will bind government actions on the fiscal side. Then in the banking union or financial markets union, we will have one supervisor for the whole euro area. And to show that there is full determination to move ahead and these are not just empty words, the European Commission will present a proposal for the supervisor in early September. So in a month. And I think I can say that works are quite advanced in this direction.

4: So more Europe, but also the various firewalls have been given attention and now they are ready to work much better than in the past. The second message is that there is more progress than it has been acknowledged. But the third point I want to make is in a sense more political. When people talk about the fragility of the euro and the increasing fragility of the euro, and perhaps the crisis of the euro, very often non-euro area member states or leaders, underestimate the amount of political capital that is being invested in the euro. And so we view this, and I do not think we are unbiased observers, we think the euro is irreversible. And it's not an empty word now, because I preceded saying exactly what actions have been made, are being made to make it irreversible. But there is another message I want to tell you. Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. There are some short-term challenges, to say the least. The short-term challenges in our view relate mostly to the financial fragmentation that has taken place in the euro area. Investors retreated within their national boundaries. The interbank market is not functioning. It is only functioning very little within each country by the way, but it is certainly not functioning across countries. And I think the key strategy point here is that if we want to get out of this crisis, we have to repair this financial fragmentation. There are at least two dimensions to this. The interbank market is not functioning, because for any bank in the world the current liquidity regulations make - to lend to other banks or borrow from other banks - a money losing proposition. So the first reason is that regulation has to be recalibrated completely.

5: The second point is in a sense a collective action problem: because national supervisors, looking at the crisis, have asked their banks, the banks under their supervision, to withdraw their activities within national boundaries. And they ring fenced liquidity positions so liquidity can't flow, even across the same holding group because the financial sector supervisors are saying "no". So even though each one of them may be right, collectively they have been wrong. And this situation will have to be overcome of course. And then there is a risk aversion factor. Risk aversion has to do with counterparty risk. Now to the extent that I think my counterparty is going to default, I am not going to lend to this counterparty. But it can be because it is short of funding. And I think we took care of that with the two big LTROs where we injected half a trillion of net liquidity into the euro area banks. We took care of that.

Then there's another dimension to this that has to do with the premia that are being charged on sovereign states borrowings. These premia have to, as I said, with default, with liquidity, but they also have to do more and more with convertibility, with the risk of convertibility. Now to the extent that these premia do not have to do with factors inherent to my counterparty - they come into our mandate. They come within our remit. To the extent that the size of these sovereign premia hampers the functioning of the monetary policy transmission channel, they come within our mandate. So we have to cope with this financial fragmentation addressing these issues. I think I will stop here; I think my assessment was candid and frank enough. Thank you.

1: In the first part Mario Draghi wants to transmit a sensation of sincerity, membership and trust in the euro zone:

- When he said “ to give you a candid assesment, from Frankufurt”.

- When he said “ the euro area is much, much stronger than people acknowledge today”.

- Compares the Euro and the Bumbleebe, to indicate the difficulty of both to Flying high.    

 

2: It is interesting the way used by Mario Draghi to engage the audience, giving a particularly optimistic picture of the crisis that is afflicting Europe:

-When he uses “WE” he tries to speak for all, a situation that involves all, a common condition.

-When he uses “I” he takes a position given by his knowledge and his position. For example: “…I was saying… I was glorifying…”

-When he uses “YOU” is to show you something of which he is aware, gives you the opportunity to see by yourself what he is saying and this, in my opinion, brings you to trust him. For example: . “If you compare … you will see…”

3: In the third part, Mario Draghi underlines the progress made by the European Union.

The speaker uses the expression "I always say" to specify the continuity of his thought. Then, he repeats twice "the last summit was a real success ..." to emphasize the achievements of the last summit.

He continues to use the pronoun "we" in the phrase "we can continue discussing" and "we will have" to involve all and give a sense of unity in the community.

Mario Draghi takes up the discussion in the first person with the phrase "I think I can say" to convey a positive feeling and a sense of hope for the future of the Union.

4: At first Mario begins this part with a pillar of his thought: "more Europe", then clearly explains that the message he want to give it is more political, arguing that it’s impossible to return to national money but you have to maintain the euro.

Finally, he proposed his solution to defeat the crisis:"if we want to get out of this crisis, we have to repair this financial fragmentation".

If we look the lexical choice we can find several characteristics:

-The use of “three”, a typical strategy to remark concepts that are important and more used in political speech;

-The repetitions of “euro” that is a central noun of his speech.

-Eventually we can find also mental process, when he said (I Think). 

5: Mario Draghi uses they and  their when he wants to create a certain distance between himself and what is wrong or doesn’t work, in this case “the banks” and their “national supervisor”.

-He uses “We” when he wants to underline that he and his institution are moving in a positive way to solve the problems, this is well exemplified when he said “I think we took care of that…we took care of that”, creating in this way a strong opposition between “they”, the “bad”, and “we”, the “good”.

Eventually he uses “I think” when he wants to make his audience understand he is completely convinced of what he said, an example is when he said “I think my assessment was candid and frank enough”.

Post 10_The ECB and the sovereign debt crisis

The European central bank is the central bank for the euro and  administers the monetary policy of the 17 EU member states which constitute the Eurozone. The primary objective of the European Central Bank is to maintain price stability within the Eurozone, which is the same as keeping inflation low and prevent deflation. On 9 May 2010, the 27 27 countries of the European union agreed, in order to have a new instrument to tackle the crisis, to a new pact which create the European Financial Stability Facility. The EFSF’s mandate is to safeguard financial stability in Europe by providing financial assistance to Eurozone Member States; the main instruments that it can use are: the providing of loans to countries in financial difficulties and to finance recapitalizations of financial institutions through loans to governments. In these days the president of the ECB, Mario Draghi, is under increasing pressure to abandon the bank's defined mandate to maintain price stability, and to instead become the Eurozone's lender of last resort; it prints more money to buy European states bond In order to reduce their sovereign debt. this has been considered, by some countries, as a panacea for their huge sovereign debts and as the best solution to sort out from this crisis, Germany and other countries instead  fear the central bank will trigger an inflationary spiral. And unconstrained monetizing of Spanish and Italian debt will ultimately prove to be inflationary if governments fail to stick to their austerity measures. In a recent interview, asked about the financing of Italian and Spanish sovereign debt ,Luc Coene, the Belgian bank governor said that  “It makes no sense for the ECB to start financing those countries, it would only lead to the ECB taking on the whole public debt of Spain and Italy onto its balance sheet, the conclusion is clear: When you take away the market pressure, you take away the pressure on politicians to act.” President Mario Draghi  reiterates a lot of times  that "the ECB cannot replace governments," and that countries would have to request assistance from the European Financial Stability Facility (EFSF) before the ECB could step in. Unfortunately, history shows that once market pressure is relaxed on governments, they tend to restart spending and increasing their debt again. At the moment austerity seems to be the only believable  instrument to tackle the sovereign debt crisis.

References:
http://www.huffingtonpost.com/sheldon-filger/european-central-bank-and_b_1106039.html
http://blogs.wsj.com/eurocrisis/2012/07/26/ecb-finds-a-way-to-buy-sovereign-debt/
http://www.telegraph.co.uk/finance/financialcrisis/9468862/Debt-crisis-ECB-buying-Spanish-and-Italian-debt-makes-no-sense-says-Belgian-bank-governor.html

Here's a funny short video that explain how the euro debt crisis was generated.

Post_9 Italy

After the financial earthquake that hit the United States, due to the subprime mortgage crisis and that, due to the globalization markets, it has spread around the world, including in Italy where there are today strong signs of economic crisis.

Everything stems from three major problems: the state debt, the slowdown in economic growth and the government's credibility.

This is not a new fact. Are few decades that our country is going through hard economic times, mainly due the considerable public debt accumulated since the seventies and eighties of the last century. And yet, the current situation seems to have worsened.

Our main problem, as it is known and has been repeated for many years and even more since the beginning of the crisis, is the public debt. One of the famous Maastricht criteria, which regulated the entry of European countries in the single currency, fixed the ceiling of 60 per cent of the ratio of debt to gross domestic product (GDP), a report that Italy joined in 1982. Since then, our national debt has grown dramatically within a few years: between 1982 and 1994, in a range of twelve years, has grown from 60 per cent to 121 per cent of gross domestic product. Very few countries in the world have higher rates.

Insecurity, layoffs, layoffs, unemployment, families in need are now daily experience for millions of Italians. Of course, the economy and, consequently, lifestyles are changing and the Italians are serving the greater competitiveness of countries where labour is cheaper.

Were released by Istat a provisional data on employment reported in March 2012. There are an increase of unemployment  especially referred to young people where the unemployment rate is  28.6 per cent of people aged between 15 and 30 years. In the third quarter of 2012 gross domestic product fell by 0.2% from the previous quarter and 2.4% over the third quarter of 2011[1]. 

Italy is a country in recession.
In Italy, business are closing continually and the fault is due to the international economic crisis. Since 2008, banks and financial institutions have collapsed and they created a domino effect across the globe. In Italy, businesses close for other reasons: lack sudden liquidity, tax questions, suffocating bureaucracy.
The sudden lack of liquidity is linked to the banks’ problems. Banks feel the crisis and do not finance the businesses, which find themselves without cash to pay suppliers and salaries and after they are forced to close. If the banks do not pay, business close down.

Another problem is the oppressive tax burden.
The suffocating tax burden and Italian bureaucracy are a large ballast that prevents growth.
Then we have to consider the lack of infrastructure: it is difficult to open a company in areas where trains do not even.
The subprime mortgage crisis and the credit crunch are not the only concerns to disturb the slumbers of the Europeans. The price of oil reached a new record for the continued demand from emerging economies of China and India. This has affected consumers in North America and Europe in two ways. They are forced to pay exorbitant prices for their cars and for home heating; rising prices have also squirt the commodity prices of feed, and this has created an endless spiral. The food has become so expensive that in some cases there have been riots in countries in the developing world.
The economic crisis is the result of wrong human choices in the United States and the natural development of the Eastern economies. Oil prices will never return to the levels of the past and the world must learn to accept this new reality and act accordingly. Similarly, the credit crisis, which began in the United States, can only be resolved by the United States. There is not much to do for Europe, which must try to weather the storm as best he can. 

According to many, the recovery cannot be separated from escaping from euro for the weaker countries, for others need to strengthen the common European politic but what are the best solutions to cope with and overcome the crisis? Some economists argue that we should introduce a soft austerity: state finances must be redesigned in order to have a lighter tax, which corresponds to a lower public spending but efficient. That's what they're doing Poland and some Baltic states, but it takes a strong leadership, is necessary, at the same time, encourage cooperation between strong states and weak states.

A key priority for Italy is to restore credibility of the political class. Strong measures must be taken against corruption, bad governance, and everything that affects our country. The policy cannot be a business, but a commitment that must be carried out without fraud and theft. We think that this is the first step to give justice to a country that thrives on scandals and deceit.

References:
De Masi D., "Development without employment", Rome, Labour, 1994.
Schumpeter J.A., "Capitalism, Socialism and Democracy", London, Etas, 2001.

---

[1] La Repubblica, November 14th 2012

Post_8 November 14th 2012:General strike and demonstrations

The Executive Committee of the European Trade Union Confederation (ETUC) called for a Day of Action and Solidarity, across Europe on 14 November in order to mobilize the European trade union movement behind the ETUC policies set out in the ‘Social compact for Europe’.[1]

About forty trade unions from 23 countries responded to the first “anti-austerity day”, a day of protests across all Europe against austerity measures in the Old Continent.[2]

Here there are some initiatives taken by trade unions in different European countries.
Some have suggested the strike, others different types of events.

Spain:
CCOO – UGT – USO: general strike             
Portugal:
CGTP + public services of UGT: general strike
Greece:
GSEE – ADEDY: 3 hours general strike (general strike of 3 hours)
Bulgaria:
PODKREPA: Podkrepa has organized open forums in several large Bulgarian cities against austerity and for job quality.
Malta:
GWU, CMTU, FORUM: The three Maltese Confederations, the Forum of Maltese Unions (for.U.M.), the General Workers Union (GWU) and the Confederation of Malta Trade Unions (CMTU) will be jointly organizing a Half-Day Seminar on the 14th. November where the Press was invited. The emphasis was be on Jobs and Solidarity and not to Austerity Measures.
Mr. John Bencini (FOR.U.M.), Mr. Tony Zarb (GWU) and Mr. William Portelli (CMTU) were the main speakers.
This was the first time that all three confederations were unite for a common cause.
Latvia :
LBAS: LBAS has organized political and media action on the issue of youth unemployment. A delegation of young trade unionists and trade union leaders met the speaker of the Parliament to discuss about youth employment and education.
Italy:
CGIL: General strike of 4 hours
UIL: Action centered on the education
CISL: This trade union organized actions, at the local level, to promote the proposals contained in the Social contract for Europe of CES. The federation of public services has organized a gathering in front of the Chamber of deputies in Rome to protest against budget cuts.
Finland :
SAK, STTK, AKAVA :Take political and media action to call for the respect of workers’ rights in Europe.
Activities included meeting with the Prime Minister and Ministers of Finance and Labour.
Common demands were delivered to the European Commissioner for Economic and Monetary Affairs Olli Rehn and Members of the European Parliament.
France:
CGT – CFDT – UNSA – FSU – SOLIDAIRES : Demonstrations on all the territory for the employment  and the solidarity in Europe. 25 demonstrations in France.[3]

ETUC General Secretary Bernadette Ségol commented: "Europe’s leaders should recognize the full magnitude of yesterday’s European mobilisation. Some 50 trade union organisations from 28 countries participated actively in this day of action. It is impossible to pursue the path of austerity, which is a total failure. According to a recent report by the International Labour Organisation (ILO), the austerity measures implemented in Greece are leading to violations of fundamental rights. We need to change course immediately. The social situation is urgent."[4]

 In this day and in the most of  European Union States  were present not only trade unions but also students, workers and common people that it is contrary to this type of measures.

We must remember that in the recent months there have been many demonstrations against the crisis, as we can see in the two videos below,

Greece http://www.guardian.co.uk/world/video/2012/oct/18/greek-police-demonstrators-athens-video

http://www.guardian.co.uk/world/video/2012/sep/26/greece-general-strike-austerity-video

 

Spain: http://www.guardian.co.uk/world/video/2012/sep/27/spains-anti-austerity-protest-video

but none has reached the size of that of Wednesday!

Demonstrations were numerous and not without clashes; for example riot police arrested at least two protesters in Madrid and hit others with batons, in Rome[5] students pelted police with rocks in a protest over money-saving plans for the school system^[6] , demonstrators in Athens clash with riot police during the general strike in protest.

At the other side, the Chancellor of Germany Angela Merkel said that it’s important to listen the protesters' demands but it’s necessary go forward[7] in this direction.

 http://www.guardian.co.uk/world/video/2012/sep/26/greece-general-strike-austerity-video

---

[1] http://www.etuc.org/a/10446

To see the Social Compact Document visit http://www.etuc.org/a/10049

[2] http://it.euronews.com/2012/11/14/sindacati-europei-uniti-qual-e-la-loro-forza/

[3] http://www.etuc.org/IMG/pdf/TableauActions.pdf

[4]  http://www.etuc.org/a/10575

[5] http://www.corriere.it/cronache/12_novembre_14/sciopero-generale-cortei_d14300b6-2e2c-11e2-9c24-e6f239e4fed7.shtml

[6] http://www.reuters.com/article/2012/11/14/us-spain-portugal-strike-idUSBRE8AD00020121114

[7] http://it.euronews.com/2012/11/15/europa-in-piazza-merkel-necessario-andare-avanti/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+euronews%2Fit%2Fhome+%28euronews+-+home+-+it%29

Post_ 7 Spain

The explosion of worldwide economic crisis in 2008 has revealed a greater fragility of Spain compared to other countries. That's because Spain hasn’t created over the decades solid economic foundations of production, and because of the strong unbalance on the the tertiary sector (more than 60% of companies: tourism, transport, trade, telecommunications, financial and insurance services), which has suffered especially from the crisis. After 15 years, at the end of 2008,  GDP shrinks and in February 2009  Spain (as well as Greece, Irleand and Portugal) officially goes into recession. The building, which during the boom years had a major role in tow the spanish economy, during the crisis had a real paralysis. Prices for square meter collapsed and the sale of real estate became very difficult (almost half million of houses built have not been sold ). The crisis has also impacted on tourism, which however didn’t fall because of competitive prices compared to the European average. There is also an exponential growth of social spending.  Former Prime MInister Zapatero was alleged to have bet  too much on the construction industry trying to counter the crisis, financing many public works, not actually necessary (roads, parks, flowerbeds), which allowed the construction companies to go ahead, but without producing neither real wealth nor work for the future. In addition, the premier sought to deny until the last the severity of the economic situation, always speaking of a transitional slowdown. He was forced to resign six months before the end of his mandate because of the collapse of popular support with resulting unprecedented triumph of Partido Popular at early elections in November 2011. In the 2012 the financial crisis and the housing bubble put in serious trouble the economic situation. Banks and Government of Rajoy is forced to turn to EFSF (European Financial Stabilty Facility) to recapitalize Spanish banks. Unemployment raches stellar levels, around 25%, and youth unmployment (relating to young people under 25 years of age) exceeds 50% , these are signs o fan economy in recession as well as the flight of capital abroad and the steady increase in interest rates of government bonds up to 7% and then the spread increase over the German Bund.

The remedial measures taken to limit the damages: cuts and taxes

To combat this trend, in july 2012 the Government operates numerous and important cut: immediate suppression of thirteenth month's salary for state workers as well as reduction of holidays, cuts in unemployment benefits and pensions, increases of VAT from 18 to 21%. Popular protests against these measures are significant, because peoplerebel against the idea of having to pay to repair the crash of financial institutions generated by real estate companies.  The state does not have the means to remedy this deficit and thus tries to reduce costs and increase the tax burden on citizens. In the eyes of the world one of the most powerful images of Spanish crisis is the endless protest of miners in the region of Asturias, in the north of the country, who are asking the Minister Soria to respect the pact between the government and unions which provides aid throughout the 2012 for the mining sector, to achieve the progressive closure of mines not earlier than 2018. The cuts due to the crisis instead would lead to an immediate closing of structures, creating more unemployment in an area not among the richest in the 

peninsula.

Possible strenghts to be leveraged for shooting: exporting and innovation

In front of this almost catastrophic situation, there is anyway a downside positive the Iberian financial sector has proved relatively solid in the subprime crisis (which instead was catastrophic for the United States) and, in addition, many companies have been able to expand significantly in Latin America, China and India. In addition, innovation in several areas (renewable Energy, hi-tec, biotechnology, pharmaceuticals) has reached in Spain excellent levels of development and can be one of the key points for a re birth based on something more concrete than inflated construction investments that has played  a major role to push the country into recession.