Journal G8 & International Workshop: the future of Italy & Europe


G8 & International Workshop: the future of Italy & Europe

18 June 2013

The week-end of June 7-8 I attended an international workshop in Venice, where a number of topics were discussed by a number of representatives of the institutions and opinion leaders of both business and academics worlds.

Here are my notes re. the main highlights:


- several analysts predicted the crisis we are in since 15 years ago, as the Euro currency setting was not enough to implement monetary union. Many had predicted that a body above the European States would have been necessary to guarantee fiscal and banking union. Actually, the mere coordination among the State members, which was defined at the time of the Euro creation, is not strong enough under the current tough conditions. As a result, this is generating tensions and suspects among the State members of the Union, given that there is no body above the parties which is taking decisions, and the directions some States are giving to others look like unilateral and instrumental

- North and South Europe need each other, as Europe is the only way to compete in a world where there aren't only the US, but other emerging super-powers like China and India

- similarly, the US and Europe need each other, as we have many cultural commonalities and a long history of trust and collaboration

- North Europe needs to accept to support weaker Countries to get them out of this crisis, however, South Europe needs to implement the reforms which are necessary to sustain its credibility

- Banking Union and a single supervision process would be desirable. The Resolution mechanism is also important, given the Banking system relevance. The risk that some analysts still see is Brussels' too heavy bureaucracy, which may drive these initiatives too far

- For several years (since 1990 through 2007), the differences (in growth, inflation, and unemployment) among Italy, Germany and France were only quantitative, even if they grew at different speeds. However, since 2008, the difference translated in a sign change, with Italy about to post the third consecutive GDP decline in a row. After the Lehman Brothers collapse, the Euro crisis exploded by highlighting and accelerating the differences among the European Countries.


- We've discussed about the relevance of innovation and the need to create an environment able to nurture it: e.g., major Bloomberg in NY was able to set an almost entirely new ecosystem for start-up's and has fostered the creation of an education system able to train more engineers and programmers in a timely fashion. Italy needs to mobilize again, like after WW II

- Main reasons why Italy is underperforming:

- structural policies and competitiveness
- dimension of the companies
- specialization model.

- Italy's total wealth vs GDP is among the highest in the world. The banking sector is inefficient, though, and it's allocating this wealth in a very inefficient way.


Roots of the current French economy weakness:
- financial deficit
- lack of competitiveness in the industrial sector
- French people are used to go to the State to get help (50%+ of the French GDP is in Public Sector)
- Taxes are too high for entrepreneurs vs earnings oppties
- Rigid labor laws
- Cost of labor.

However, some good initiatives have been taken by the current President: tax credits, pensions reforms.

Plus in France: high savings rate, good infrastructure, highly skilled workforce


- Germany is not competitive enough in the services area, espec in the IT svcs, which are strategic
- The social market economy, introduced after WW II, is working well
- Consensus based decisions' system
- Germans are concerned about sustainability, from any perspective: savings, environment, etc
- Sound industrial policies are in place
- Great Educational system, which was built in the 1880s, and difficult to replicate by other Countries short term
- Clusters' policies: Universities plus R&D plus Industrial
- Economic issues, faced at the end of the '90s, were solved by the major reforms implemented from 1999-2004

The major threat for Germany machinery & tooling is not Japan, but China, against which German companies are loosing share.


In summary, there are still several potential scenarios which may develop out of the current global crisis.

To my understanding it was clear, though, that, once again, austerity without growth is not going to lead Europe out of the crisis. As a result, there are a number of actions which should be taken asap at the European level, among which the most urgent look like the following:

1) solve the credit crunch issue, eg, by consolidating the intra-european banking system;
2) support a growth program, to tackle also unemployment, by focusing on the infrastructures and by setting a consistent privatization program.

Let's just hope that cooperation may prevail over suspect, and prevent any nationalistic games. Unfortunately, a weak signal is already coming from the complex initial steps of the Europe-US free trade agreement negotiation. We'll see if the current G8 will be able to act with the due sense of urgency.

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