Wednesday, February 20, 2013

Italy bosses call for 'shock therapy' as recession takes its toll

The south of Europe is fast becoming engulfed in political turmoil as the economic contraction deepens. After protests against soaring electricity prices, austerity and corruption turned violent Bulgaria’s government has collapsed. "I will not participate in a government under which police are beating people," says prime minister Boiko Borisov.

In Greece, Bulgaria’s southern neighbour, workers are once again taking to the streets in the first general strike against austerity for 2013, joining farmers who have been blocking roads for nearly a month, protesting at high production costs and fuel prices.

Despite more than 20 general strikes, economic conditions continue to deteriorate. Claims by the government of Antonis Samaras that the country has now turned the corner would be considered laughable if the situation wasn’t so serious.

Two-thirds of employees in the private sector no longer receive regular pay. Unemployment has passed 27% and is predicted to reach 30% this year. More than 60% of young people are without a job. Benefits run out after one year, so now only 225,000 jobless Greeks are currently receiving monthly state assistance.

Last summer, all but the lowest-paid employees were hit with an emergency bill in additional taxes, often for several thousand euros. Further charges were levied on electricity bills, with households that failed to pay disconnected from the power grid. And another round of tax increases took effect this year, the price of further bailout funds secured in December.

Savas Robolis, professor of economics and public policy at Panteion University in Athens, and the head of research at the General Confederation of Greek Workers says: "The standard of living of the average Greek worker between 2009 and 2012, in a span of 36 months, has declined by at least 50 percent."

GDP is expected to contract by a further 4.1% this year, and Robolis warns that that country is fast approaching a tipping point in which “Greek workers and unemployed people may soon not have enough money left to pay taxes while covering their basic needs. If that happens, it would be the worst possible outcome for the Greek economy and Greek society."

Figures show a sharp fall in the country’s trade deficit, but the published figures so far don’t tell us whether the fall in imports is due to a reduction in capital imports which would signal yet a further sharp contraction.

An election in Italy this weekend is set to replace the appointed technocratic government of Mario Monti. The new government which, amazingly, could see the return of Silvio Berlusconi, due back in court to face sex charges after the election, will take charge of what many call the sickest economy in Europe.

Italy, the eurozone's third-biggest economy, has been in recession since the second half of 2011. After 14 years of near-zero growth it is now smaller than in 2001 and shrank most out of the rich G7 countries last year, its GDP contracting by a bigger than expected 2.7%. 

But as the latest snapshots from the OECD club of rich countries show, a return to growth in Italy or anywhere else is ruled out as the global capitalist recession deepens. Economic output across the OECD's 34 member states fell by 0.2% in the three months to the end of December, representing the first contraction since early 2009. The OECD said that the contraction was "particularly marked" in the European Union, where GDP fell by 0.5%  in the fourth quarter.

Marcella Panucci, director-general of Italy’s big employers’ federation, Confindustria, is pushing for a stable government, that she hopes will pursue “shock therapy” policies to restore growth. This open call to destroy living standards is a real sign of a deepening political and social crisis not just in Italy, but throughout Europe.

Gerry Gold
Economics editor

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