Jiang Shixue's Comment on Italian Economic Situation

On October 29, 2013, the Italian embassy to Beijing organized a seminar, at which Jiang Shixue,Professor and Deputy Director of the Institute of European Studies, Chinese Academy of Social Sciences, was invited to comment on the presentation of Lorenzo Codogno, Director-General of Economic and Financial Analysis and Planning of the Italian Ministry of Economy and Finance.

Codogno offered a detailed analysis of the economic situation in Italy. His presentation can find them at:http://www.dt.mef.gov.it/en/analisi_programmazione_economico_finanziaria/strategia_crescita/

Jiang Shixue started his comment by pointing out an article published by the Guangzhou Daily (September 17, 2013). Its title is “No-money-no-fun for the Italian Playboys”. It said that, due to the poor economic situation, Italians cannot find enough money to date their girl-friends. “This is the perception of some of the Chinese about the Italian economic situation today,” said Jiang Shixue.

Jiang Shixue said that there are both cautions and optimism. The following factors might have a negative impact on the Italian economy: large debt-GDP ratio, long-lasting legacy of austerity, spill-over effect of the European debt crisis and sluggish U.S. economy, and also the domestic political handicap. “Italy is certainly too big to fail or too big to save,” Jiang Shixue said.

Jiang Shixue agreed with Lorenzo Codogno that there are several positive indicators of the Italian economy: no housing bubble; solid banking system; relatively low unemployment rate, particularly compared with Spain and other EU members; small budget deficit; large gold reserves; and no great decrease of exports.  He also pointed out that, like Japan, Italy’s majority of government bonds are held by Italians.

In his comment Jiang Shixue put forward the following issues to ponder:

First, what is “crisis”? Berlusconi once said, before he stepped down, that Italy was not in a crisis because the restaurants were full of people.  Jiang Shixue did not agree that numbers of customers in a restaurant can be used as a judgment to determine if a country is in a debt crisis or not. 

But neither did Jiang Shixue agree with the opinion that Italy has fallen into debt crisis although its debt burden is really heavy. According him, only those who ask for bail-out, i.e., Greece, Ireland, Portugal and Cyprus, can be seen as being caught in a crisis. So Italy has not come up with a crisis in the first place.

Second, is the EU out of the woods now? Jiang Shixue asked, “What conditions are needed before we can say with a smiling face: the European debt crisis is over? Does it mean: Positive GDP growth rate? Bringing down debt and deficit to 60% and 3%? Returning to capital market? Lowering down 10-year bond spread below 6% or 5%? No more assistance from the troika? Calm and peaceful streets without protest? No more headlines news coverage about the debt crisis by the People’s Daily, CNN, Financial Times, Bloomberg, etc.? Or…? Do we have to see all these nice things happen at the same time?”

Third, is austerity necessary? Tightening belt is hated by everybody. “In 1997-98 Koreans did protest, but presented their gold jewelries as donations to the government. Should the Greeks learn from the Koreans? Does culture matter?” asked Jiang Shixue.

In the Q&A period, Lorenzo Codogno said, “Don’t expect the Italians would love to donate their gold jewelries.”

Finally, can China offer a helping hand? Jiang Shixue said, “Yes.” He believed that Italy might try to attract more Chinese investment, export more to the Chinese market, and attract more Chinese tourists.