Via Mish-modified Google translation from Libre Mercado (LM), Enrico Colombatto, Professor of Economics at the University of Turin says in an interview “The only hope for Italy is the bankruptcy of the State”
Enrico Colombatto (EC), Professor of Economics at the University of Turin and director of the Center of Economic Research in the Piedmontese town, offers a groundbreaking proposal: “Do not pay the debt.”
It seems unthinkable, but he believes it will be the only way to start fresh, leaving those who have lent money to irresponsible politicians pay for their mistake.
LM: Spain and Italy have very large states, but they are very inefficient. Our laws are stifling, heavy.
EC: In Italy, the public sector is not intended as an aid to the production of wealth and public goods and services. It has been conceived as an observatory to generate political consensus and to please the own clientele. The concept of public is of assistance but not to the public, but the public sector employee. The beneficiary of the public sector is dependent on this sector, not the public.
LM: After six years of crisis we have more spending, more laws, more intervention, … Where does change start?
EC: By the mentality. It has aggravated the welfare spirit that we have within us. The state is the problem, not the solution.
LM: It’s counter-intuitive, but when politicians fail, they want more power. And politicians who are succeeding all want more power to the state. In Spain, demonstrations call for a public banking as a solution to problems. Can we escape this trap?
EC: If we think that the state is the solution, all the problems are going to focus in that perspective. The problem is cultural and ideological. It starts when our children go to school and get to talk about social justice. Children are taught the state should solve every problem: pensions, sickness, education … The solution is to drop the veil that protects the state. In bankruptcy, people will realize that giving loans to the State, and state guarantees are useless.
LM: A few days ago there was a poll in which the public demanded more taxes.
EC: It is a matter of propaganda. The State says “do not worry, I will only raise taxes on the rich”. However, the rich pay more, but also the poor. For example, in Italy, the Monti government introduced a tax on real estate, and 85% of Italians are owners. This is a middle class tax hike. And a country that stifles and suffocates its middle class can not grow.
LM: From your perspective as a university professor, do you have bad omens in regards to a lost generation for Italy and Spain?
EC: Yes and no, It could be 50 years, not just 15. The key will be in the new political class.
LM: Some people think it might not be so bad that we intervene. They prefer to let Germany or the troika decide instead of our politicians.
EC: Because the Germans have many Spanish and Italian bonds, they always favor higher taxation so Southern Europe can pay back those loans. I trust the Chinese more than the Germans. We need a new ruling class because the existing system is corrupt and must be eliminated – No IMF, EU bureaucrats, or Germany.
LM: Where to begin?
EC: You have to start by deregulation. Monti’s government has made things worse, especially in the labor market. The regulation is where it was 10 years ago … well, maybe as it was 150 years ago.
LM: It is always said that Spain and Italy need to get to compete globally, but many of the labor laws limit the growth of companies, with more regulation and more taxes to the largest companies.
EC: Yes, there are two elements. First regulation, both in general and the labor market in particular, changes to the size of companies. Often the entrepreneur thinks “it’s not worth growing, because I will have many new demands.” There is also an issue of tax evasion: it is much harder to do it when you’re big. And finally, we have the element of funding. To grow need a functioning credit market. And in Italy in the last thirty years, the credit market has served to finance the public debt. There are so many resources that should be used to finance the growth of businesses, but only served to finance the growth of the state. As a result, businesses remain small, because they are funded with self-financing.
LM: Correct. But with this in mind, is there way out of this? Because Italian public debt is the highest in Europe after Greece.
EC: The only hope is the default by the State. We paid about 90,000 million euros in interest. And along with this, we have to face the return of credit. It can’t be done.
LM: And the financial system does not collapse?
EC: Why? The underlying conviction is that we will emerge from the crisis by printing money. It is a politically attractive solution, but destructive. The last example in Europe led to Nazism. I do not think we’ll get to that, of course, but inflation certainly create social problems and tensions. The question is who should pay? The one who has financed the bad debtor [Spanish or Italian politicians] or the community via higher taxes? The European socialist solution is that losses should be disseminated throughout the population. But this has failed.
Mike “Mish” Shedlock