December 6, 2011

Save Italy!

Finally Italy appears to be ready to pass an austerity package just 6 months after it became the next domino tile in the Euro collapse.
Measure to be approved before the end of the week are the following:
  1. Raise more than 10 billion euros from a new property tax
  2. Impose a new tax on luxury items like yachts
  3. Raise value added tax
  4. Crack down on tax evasion
  5. Increase the pension age

The above package was dubbed the "Save Italy" package by Prime Minister Mario Monti. Supposedly it will boost growth.

While I agree pension reform is much needed, there is not a single thing in the package to boost growth. Italy is in recession. Raising taxes in a recession is the last thing you want to do, yet four of Monti's five ideas raise taxes.

This proposal may temporarily placate the bond market, but Italy is headed for one "super recession"
Italy needs to cut wasteful government spending which is totally out of control but at this stage Monti unfortunately still need support of cronies and corrupt politicians who would sink Italy rather than lose their entrenched priviliges and wasteful spending which is supporting their cronies.
Monti has been appointed by the EU (aka France and Germany) to ransack the private wealth in order to cover foreign bank losses but still need every single piece of law to be approved by the same corrupt parliament which was supporting Berlusconi just weeks ago.
It will be a long friction war and hopes for a real reform of the country are far from being realized in the actual situation, market punishment will occasionally remind politicians of who is really in charge in Italy but deep reforms with this political class still with voting power are an illusion.
Money can be found only where no vested interests are present, therefore unfortunately once again the unrepresented and marginalized will pay the steepest price to this crisis.
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