A Short reminder for next Government

Italian Politics these days looks quite difficult to understand (but I tried to offer a naïve model to read it in this post) and it is hard to say even why the crisis has started and which colors will have the next Government.

A very short and useful explanation has been provided by a friend of mine, professor Sandro Brusco of Stony Brook University :

(…) The bottom line: Italy had a long period of government instability mainly because of its proportional system. The system was (partially) changed in 1994 but it never was entirely majoritarian. After a number of reforms and pronouncement from the Supreme Court the system went back to being essentially proportional in the last election. Thus, in terms of government duration, we are back to the period 1948-1994, the proportional period, in which governments lasted between 12 and 18 months. This government was installed in June 2018, so it basically reached maturity. From that point of view, things are actually quite boring. (…)

Read the full post

Rather than looking pointless explanation of present, it is much easier to foresee behavior of upcoming government: it will make a deal with EU trading 1) additional budget flexibility for 2) commitment to make future reforms.

Why such a deal? Because it will lower present burden on taxpayers, it will reduce the bad taste of poisoned pill budget law and given the potential risks arising from US-China trade war and global recession, EU will be happy to pretend to believe that someday reforms will come.

If near future is written and present politics conundrum is pointless to explain what else can be said?

Below 3 short reminders for government to come:

  1. Italy’s problem 1 is demography and current pension system is unsustainable – excess burden on young people provides an incentive for those with best education and the strongest risk appetite to leave the country worsening the situation       
  2. Italy’s problem 2 is competitiveness – open new business and keep existing ones alive is more difficult days after day and so many actual and potential entrepreneurs start thinking tha change country is easier than wait that this country changes   
  3. Italy’s problem 3 is growth – the more the country grows old and becomes less competitive the less likely it will show a significant economic growth – a wide interference of state in economy and a dysfunctional welfare system are additional ingredients for long lasting stagnation

Has anyone heard about these problems in politicians’ words or on main Italian newspapers? Not really, with some remarkable exceptions.

Bottom line 3 short suggestions for next government could be

  1. Try to shift part of current burden from young ones to old ones
  2. Try support policies that enhances competitiveness of the country (es Shift burden from less risk adverse people to those who are more risk adverse)
  3. Try to focus more on how to enlarge the pie of potential wealth rather than how to divide the existing one

Post Scriptum

Why send a letter in English to Italian Government? Maybe the true recipient of the letter is not the Government.

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About Massimo Famularo

Investment Manager and Blogger Focus on Distressed Assets and Non Performing Loans Interested in Politics, Economics,
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1 Response to A Short reminder for next Government

  1. Pingback: Newsletter 2018-09-25 | Massimo Famularo (ITA)

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