Sunday, August 14, 2011

Italy's long holiday may be about to come to an abrupt end

By Jennifer O’Connell

The elderly woman stood in her doorway, filling the street with the anxious sounds of the TV set blaring in the corner, and the aroma from the pot of minestrone bubbling on the stove behind her.

But she wasn’t worried about lunch: for once, she had some more universal problems on her mind.

“In Italia é la miseria,” she declared, throwing her arms open wide and gesturing to the sunny courtyard and the spectacular mountains beyond, as if some clue to the mysterious financial problems gripping her country might be found in the pots of gently nodding geraniums.

“La miseria!”

In six weeks in this country, this was the first – and last - conversation I’d had about the financial crisis.

The most serious drama yet to face the eurozone may be playing out here, but you’d never know it. In restaurants and on the beach, the same preoccupations that have always existed continue, on the surface at least, to exercise the hordes of Italian holidaymakers: food, the unseasonably cold weather, Berlusconi’s peccadilloes, and whether that foreigner with the skinny, pale children has heard of suncream.

But you don’t have to look far for evidence of how Italy’s business culture might have contributed to the mess that’s now threatening to destabilise the currency, and recently wiped 11 per cent off the value of shares worldwide in the space of a fortnight.

Shops are shuttered up, with the unapologetic “Chiuso per le ferie” signs that traditionally go up in their windows in August.

And it’s not just shopowners who have taken to the beach for the month: on the day Berlusconi announced that austerity targets would be accelerated by 12 months to 2013, members of his cabinet listened were preparing to head for their holidays, prompting the leftwing daily Il Fatto Quotidiano to note that “to speak about the most serious crisis in the past 20 years in front of members of parliament with their suitcases packed, more concentrated on their holidays than on servicing the public debt, gives the image of a political class that is blissfully ignorant.”

Photo by Jimmy Harris on Flickr via creative commons

In a meagre nod to the crisis that has seen share values plunge and borrowing costs rise to unsustainable levels, Italian lawmakers agreed to return from their holidays six days early – but that means they still won’t be back until September 6.

Meanwhile, that mood of blissful ignorance extends beyond Rome. As the country’s economic future hung precariously in the balance, life continued as normal elsewhere: the shops that haven’t closed for the whole month follow the same erratic hours they do for the rest of the year.

In this part of Tuscany, that means they close on Monday mornings, and for three or four hours in the middle of the day, drawing down the shutters again for the evening at 7pm. In one small, outwardly prosperous town near to where we’re staying, the daily lunch break runs from 1pm until 5pm.

With small businesses employing just 15 people making up the bulk of the country’s economy, the problem is about more than where to buy a loaf of bread in the afternoon.

The family-run firms that were responsible for the ‘economic miracle’ of the 1950s and 60s have become an albatross around the country’s neck, as they struggle to modernise and compete in a global economy.

Real GDP is expected to grow by a paltry 1 per cent this year, and 1.3 per cent in 2012 – nowhere near enough to put a dent in its staggering debt of €1.8 trillion.

And you don’t have to be an economist to work out where at least part of the problem lies: in restaurants away from the main resorts, the process of asking for the bill invariably involves a waiter leaning close to your ear and invoking some neat, round figure, or surreptitiously passing you a piece of folded paper with a single, scrawled amount written inside. Itemised bills with VAT included are as rare as rainy days in July.

Italy, unlike Ireland and Spain, was not derailed by a property crash: under Berlusconi’s leadership, the boom years simply passed it by. According to media reports last week, the only countries with lower levels of economic growth over the 10 years up to 2010 were Zimbabwe and Haiti.

Unemployment levels, at just over 8 per cent, are below average for Europe, but conversely, the country also has one of the lowest employment levels in the eurozone.

Fourteen per cent of the country’s GDP is dedicated to covering the cost of pensions. At the other end of the demographic spectrum, middle-class families are putting themselves into debt or selling off assets to subsidise their adult children, who are living at home because they can’t find jobs.

The notion that Italy – and the entire future of the eurozone – may now be relying on the mercurial Berlusconi, who has emphatically ruled out early elections, for its survival, is not a terribly cheering one.

At an emergency press conference held ten days ago, he continued to flash his trademark salesman’s grin, and said he did not expect more market turmoil ahead.

Asked what ordinary Italians should do, he urged them to put their money into Italian bonds or – even better - shares in one of his own companies.

Unless his boundless self-confidence proves sufficiently contagious, Italy’s long holiday may be about to come to an abrupt end.

This column first appeared in The Sunday Business Post on August 14, 2011


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