“On the basis of studies conducted on crises in individual countries similar to the one we are experiencing, there is a general belief among us economists that the crisis will last seven years. But the more we go on, the more doubts grow, also because this crisis differs from the others above all because it is not limited to a single country but is global. I'll tell you an anecdote that photographs the state of uncertainty that even economists are experiencing. Some time ago a journalist asked the Governor of the Bank of England how long the crisis could last and Mervyn King punctually replied: "Seven years". But the journalist, intentionally or not, misunderstood the answer and, addressing another central banker whose name he will not reveal, exclaimed: "Seventy years of crisis". Does he know what happened? Which the second central banker raised his eyebrows but did not deny. So: 7 years or 70 years of crisis? Today, no one knows for sure." This anecdote that Angelo Tantazzi tells at Villa d'Este, on the sidelines of the Ambrosetti workshop, says a lot about the uncertainty that the crisis is sowing even among economists. Seven years or seventy? Maybe. But here is the analysis and therapies of Tantazzi, economist of the Bolognese school and president of Prometeia and until a few months president of the Italian Stock Exchange.
FIRSTONLINE – Professor Tantazzi, the Ambrosetti workshop at Villa d'Este is traditionally the barometer of the economy in Italy and in the world and since 2007 the barometer of the crisis: what is new this year? In Italy and in the world, is the worsening of the crisis inevitable or are there some signs of hope?
TANTAZZI – This year here at Villa d'Este we can breathe the air of a new general slowdown in the world economy, but also the awareness that it is not just a question of a difficult economic phase because very deep issues are coming to a head that the scenarios they imagined completely change. Little by little we are becoming aware – unfortunately more at the level of society and populations than of ruling classes and governments, at least judging by the Italian case – that we have lived beyond our means for a long time, accumulating a mountain of debts and that in the future the standard of living will be hopelessly lower than what we have known so far.
FIRSTONLINE – For what reasons?
TANTAZZI – Because the crisis has upset traditional economic paradigms and no one has yet discovered the right theory and practice to solve an almost insoluble theorem: how do you grow in an economy dominated by nagging debt? Until now this contradiction had not exploded because the debt did not involve the whole West, but the crisis has changed the cards on the table and generalized the debt, which is high everywhere even if not of the same amount for everyone. Then there is a second reason, uncomfortable and bitter at the same time.
FIRSTONLINE – Say, say…
TANTAZZI – The truth is that growing up means changing, but not everyone is comfortable with change. It's easier to float, but in this way we don't go far and we risk crashing. The Italian case is emblematic: everyone knows what should be done to relaunch the economy, but what is needed is not being done and perhaps the Chinese are not wrong when they say that "Italy is the Japan of Europe".
FIRSTONLINE – In what sense is Italy the Japan of Europe?
TANTAZZI – In the sense that we are a caged country that floats by declining or, if you prefer, that declines by floating. There is a part of society which is getting along fairly well and which has no interest in changing and there is a growing part - above all of the new generations - which is excluded from well-being and which has little hope because the country does not grow, does not it creates new jobs and produces less income.
FIRSTONLINE – Will we get out of the tunnel?
TANTAZZI – It's not easy, but first of all we need to carry out a great truth-operation. The Government should speak clearly to the Italians and say in no uncertain terms how things stand. Secondly, the country must convince itself that there are no more untouchable sanctuaries: if we want to get out of the crisis and return to growth by reducing the public debt, we must roll up our sleeves and each of us must give up something. But be careful: in a democracy, I believe that people are willing to make sacrifices but only if they are fair and above all if they are needed and if the goals are clear and clearly visible. You cannot ask people and especially the weakest to make sacrifices in the dark.
FIRSTONLINE – At the point we have reached, there are those who argue that in Italy and in Europe we are on the eve of a new storm, as indicated by the heavy declines in the stock market and the widening of the spread between the BTP and the Bund. But if Italy were to become insolvent, the euro and Europe would also collapse: fears or reality?
TANTAZZI – As long as the markets do not understand what we really want to do, starting with the maneuver, we will certainly experience difficult days and Europe will experience them if Finland does not stop playing with the Greek support plan and if Germany, aided by the elections in the Lander, it will not emerge from the uncertainty on the opportunity of the purchases of Btp and Bonos by the ECB and on the real take-off of the state-saving plan. The next few days will be decisive for everyone, but frankly I don't think it will lead to the euro crisis.
FITRSTONLINE – Why don't you believe it?
TANTAZZI – Because, if Italy were to miss, it would immediately be France's turn and then Germany's, but at that point even the most short-sighted Germans would end up waking up. As Churchill said, I think the Germans will do the right thing after they've done all the wrong things.
FIRSTONLINE – Let's hope you are right and that rationality prevails, but if this were not the case and if the euro went into crisis, what would be the main consequences for Italy?
TANTAZZI – We would have to shoulder enormous costs and make terrible sacrifices. Just think of one thing: leaving the euro and Europe, our public debt would remain denominated in euros and if, as a result, the new lira devalued appallingly, we would have to bear impossible costs for the payment of an ever more monstrous debt.
FIRSTONLINE – Up until a few months ago you were the president of the Italian Stock Exchange who is experiencing bitter days due to the continuous depreciation of securities, many of which paradoxically are worth half of their assets: from 1 to 10 how likely is it that foreign capital from abroad will balance prices the best of our companies? And in that case how could the Italian system realistically respond?
TANTAZZI – Some acquisitions from abroad cannot be excluded and it is not said that they are always negative, but a general colonization operation is not in the order of things possible or even probable. For two reasons, one basic and one more technical. The underlying reason is that foreign capital has no advantage in investing in a low-growth country: it is too risky to immobilize significant capital without having the certainty of buying growth and profits. Paradoxically, our lack of growth acts as a deterrent to foreign takeovers. Then there is a technical reason due to the fact that many of our companies still have crazy and extraordinarily high goodwill that will have to be reduced, as Telecom Italia has also recently begun to do: the assets of many of our companies are worth much less than the balance sheets. In other words, the markets are already pricing in the downsizing of many companies' assets and that is why the market capitalization is often lower than the assets, while the balance sheets are still inflated and still need to be revised downwards.
FIRSTONLINE – Prometeia's latest forecast scenario on the Italian economy signals a further deterioration with GDP growth falling to 0,7% in 2011 and even to 0,2-0,3% in 2012: it is more important to get back on track get some economic intervention right (such as the so-called fiscal devaluation mentioned by Paolo Onofri: less social security contributions for businesses and more VAT on consumer goods) or stake everything on the recovery of confidence with a clear political discontinuity?
TANTAZZI – Both things are important. The so-called fiscal devaluation is a wise measure that can help growth but obviously it is not enough on its own. It is not enough to sketch out a theoretically correct maneuver if whoever is called to manage it is not credible. At this point, the right maneuver to relaunch growth and reduce debt can help restore confidence in Italy only if it is accompanied by some form of political discontinuity. To recover the confidence of the markets, a shock is needed, in every sense.
FIRSTONLINE – If things are as you say, what will autumn be like in Italy?
TANTAZZI – Unfortunately it will be difficult. There will be no queues for bread in front of the Franciscan works but you don't need to be fortune tellers to predict tensions, lacerations, clashes and a thousand uncertainties. Unless Europe and the markets push us to accelerate discontinuity.
