Italy is the only country, alongside with Greece, that is poorer now than before having
the EURO as their official currency.
The figures leave no space for doubt; Italians now have less purchasing power than before,
making them one of the few countries that became worse off after joining the European Union.
We are talking about the second biggest industrial power in all of Europe, only surpassed by Germany.
In fact, during the 90s, Italians were wealthier than the British and the French.
If you are my age or older, you might remember EROS RAMAZZOTTI, LUCIANO PAVAROTTI or the
so-called SPAGHETTI WESTERNS.
Yes, my dear viewers…
Italy was one of the biggest powerhouses on the planet.
And all despite their Government and their ruling class.
The political history of Italy is…
How should I say it?...
Next to it, Game of Thrones would look like Gilmore Girls.
Just remember: Italians have the Sicilian COSA NOSTRA, the Calabrese N’DRANGRETTA,
the Napolitan CAMORRA
and many other gangs.
And yes, all of them have important connections with the highest level politicians.
But there is more than Mafia here!
During the Cold War, some government officials helped extreme right wing terrorist groups
that organized the most violent attacks you could imagine.
And what about the extreme left wing?
Well, they didn’t stay quiet either.
The Red Brigades kidnapped and murdered an Italian Prime Minister.
Look, if you’re into scary stories, you should google something about Propaganda Due.
Or you can just watch the movie ‘Il Divo’ from Paolo Sorrentino.
You will discover a fascinating country where politics are everything but boring.
And now you might wonder….
What’s going on in Italy now?
Do they have as much instability as they did in the 70s and the 80s?
And the answer is, oh you bet they do!
IN just 10 years, Italy has had 6 different prime ministers.
In just 10 years!
In other words, Keeping up with Italian politics is an impossible mission.
And this is why, in this video, we will not talk about the Italian elections that have
been celebrated recently… not even about Berlusconi’s love life.
Because the real question here is…
How is it possible that such a chaotic country could manage to become that wealthy?
And what is happening now, after two decades of economic stagnation?
Today we are going to answer both of these questions but before we do, let’s take a
look back at The Good, the Bad and The Ugly of Italian history.
GIULIO ANDREOTTI IS…
“THE GOOD”
During the 40s, the Italian Communist party was the biggest of its kind all across Western
Europe.
With more than 1,300,000 members, they could win an election anytime.
As you can imagine, in the middle of the Cold War, this was something America could not
let happen.
So… do you remember the MARSHALL PLAN?
If you’ve been following VisualPolitik for a long time, you already know that Uncle Sam
sent lots and lots of money to Europe so they could rebuild their destroyed cities.
When it came to Italy, this money was not only meant to help the country but also to
finance the only political party who could face the communist threat.
This party was called the CHRISTIAN DEMOCRACY.
“Mother, save your children bolchevism!
Vote Christian Democracy!”
During the following 50 years, Italy had 30 different prime ministers.
Yep, you heard that right.
This means the average age for an Italian government was little more than a year and
half.
But they all had something in common: most of them were CHRISTIAN DEMOCRAT governments.
And within the CHRISTIAN DEMOCRATS is a man you should know.
His name was GIULIO ANDREOTTI, the man who became Prime Minister 7 different times, and
the real godfather of Christian Democracy.
For years, no Italian politician could do anything without being blessed by Mr. Andreotti.
“Power wears out those who don´t have it” —Giulio Andreotti
And now you might wonder…
What did Christian Democrats stad for?
Well…
Christian Democracy was, basically, what we call a catch-up-all-party.
Anyone except a communist could find his or her place inside of this party.
And this included deals with the Napolitan CAMORRA, the Sicilian COSA NOSTRA and, allegedly,
extreme right wing groups that terrorized the country during the 80s.
But we will talk about this in another video.
The important thing is, Andreotti and his Christian Democrats badly needed the popular
support.
You know,
you need to win some elections.
And, in order to do that, what’s better than employing people with a good salary?
You see…
Italy has over 3.5 million civil servants and they are among the highest paid in the
entire World.
This means a crazy amount of public spendng and lots of bureaucracy.
In fact, since Andreotti’s time until now, Italy is famous for two things: red tape and
ineffective courts.
For a better understanding, let’s imagine we have a company that produces construction
machines and we have a client who doesn’t pay.
We take him to the courts, right?
If we are in, say, France, this process will take us around 2 and half months.
Well, in Italy we could wait more than 3 years before we get our problem solved.
As you can imagine, this is not the best business climate.
But nevertheless…
I said Italy became one of the wealthiest countries in all of Europe, right?
How is that possible?
Well, my dear VisualPolitik viewers… the answer lies in the ITALIAN LIRA.
Yep, you heard that right… having their own currency, the Italian Central Bank could
devaluate anytime they needed to put their economy on steroids.
And now you might wonder…
But…
Simon!
Isn’t this the worst thing you could do?
For instance, in this other video, I told you that Germany became Rich, partly, because
they had a very stable currency, the DEUSTCHE MARK.
And now I’m telling you the opposite.
How is it possible that Italy Could grow so much, having so much corruption, red tape
and devaluations?
Well, let’s take a look!
ROCCO SIFFREDI IS “THE UGLY”
Having acted in more than 1700 movies, Rocco Siffredi, AKA, the Italian Stallion, dominated
the adult section of rental stores worldwide during the 80s.
And yet, he is a symbol of Italian economy during that time.
A growth model that relied, heavily on… inflation.
You see, during the 80s and the 90s, Italy flooded the world markets with…
CHEAP PRODUCTS.
They were kind of a 20th century China.
As soon as something worked in some other country, some Italian company would show up
making the same thing, but… cheaper!
Here is an example: western movies.
In America, John Wayne movies were incredibly successful.
So Italian movie producers started doing more of the same, but at an industrial level.
This is how the Spaghetti western was born.
And the same happened with other industries.
While Donna Summer was making the entire world dance, Italians struck back with SABRINA,
who did the same but…
CHEAPER and more explicitly!
And what about Animated movies?
While Disney was launching Aladdin in movie theatres, the cheap, Italian version, was
already available in all the video clubs.
But they cheaply reproduced more than culture here!
In general, Italian companies mastered the art of making cheap things or, as the economists
would say, “low added value manufacturing”.
Italy produced clothes, furniture and plastic items.
If you bought an animated action figure in the 90s, it probably had a “Made in Italy”
label somewhere.
But if you bought a Stereo Sound system, it would have a Made in Germany or Made in Japan
label.
And now the questions is…
Why was the Italian economy so strongly based on selling cheap things abroad?
Well… look at this chart.
Here you can see the value of the Italian LIRA against the GERMAN MARK.
As you can see, during the 80s and the 90s, Italian currency was losing value all the
time.
In 1980, you would get 450 Liras for 1 German Mark.
15 years later, you could get 1000 liras for 1 German Mark.
So what does this mean?
It means innovation was way more expensive for Italian companies than German ones.
For instance, imagine we have an Italian production company during the 80s, and we want to make
a really innovative movie.
Something like Star Wars, with state of the art special effects and cutting edge technology.
If we want to do that, we’re going to need to buy that animation software that’s produced
in Japan, and those special cameras from America that allow us to make battle scenes.
But, since our Italian currency is losing value all the time, those things are more
expensive for us.
Add to this the fact that, for anything we do, any shooting outdoors we want to plan
or any new cameraman we have to hire, we need to cut through never-ending red tape.
This doesn’t sound good, does it?
Now imagine that, instead of making a Star Wars-like film, we call our friend Rocco Siffredi
and make a
adult movie with him.
We just need a couple of cameras, a room and a bed.
And… since we have a weak currency, we can sell our movies abroad for a lower price than
any other film.
So… with this model, the Italian economy grew sky high…
During these years, thousands of small companies were born.
But make no mistake!
Italian SMEs had nothing to do with German SMEs.
You see, German Mittlestands had between 50 and 200 workers.
And they had enough scale to invest money on research and innovation.
Italian companies were way smaller, their methods were more traditional, and their industries
were… well, more illegal…
…when Italy started taking account of its shadow economy, (…) which makes up about
a fifth of Italian
GDP.
As a result, the economy grew by 18% overnight
So now you might wonder…
Why should Italians innovate so much if they were doing well by not doing it?
Well… now I will tell you why…
SILVIO BERLUSCONI IS “THE UGLY”
This is, finally, the 21st century.
Christian Democracy is not that important anymore.
Now, the brand new leader of the center right wing is this man you see on the screen…
his name is SILVIO BERLUSCONI.
I have little hair because my brain is so big it pushes everything else out.
—Silvio Berlusconi
2002 was not the best year to be the Italian Prime Minister.
DO you know why?
Well, because 2002 was the year Italy abandoned the Italian Lira and started using the EURO.
And what’s the main characteristic of the EURO?
Here, no government can decide, by itself, how to devaluate it.
Euros are issued by the European Central Bank, which includes representatives of all the
member countries.
This was a big problem for a country like Italy, who had become so addicted to devaluation.
But things don’t stop there!
Do you remember another thing that happened at the beginning of the 2000s?
Oh really?
You don’t remember?
Well, let me refresh your memory!!
China joins the World Trade Organization - at last
And now you might wonder…
What does China have to do with the Italian economy?
Oh man… a lot!
The fact that CHina had joined the World Trade Organization was a symptom of something bigger.
It meant that all of Asia was flooding the international markets.
It was not only China.
Other countries like Thailand and Bangladesh were already becoming big manufacturing powerhouses.
And… surprise!
Surprise!
What did these countries start manufacturing first?
Exactly!
Cheap things!
The same as the Italians did… but even cheaper!
Back then, Germany was already a behemoth, technology wise.
So, despite the Asian competition, their products were still competitive.
Meanwhile, Italy could not go back to good old devaluation.
First, they were part of the euro now.
Second, devaluating wasn’t a solution against Asia’s cheap salaries.
Here is an example: one of the most symbolic Italian companies is FIAT.
In 1990, they sold over 1,300,300 cars in Europe.
Now, they just sell 700,000 and they can’t get into new markets.
Other brands like BMW still maintain their shares on their traditional markets and they
are growing in emerging countries like China.
But wait a minute because things don’t stop here!
Do you remember how Italy had over 3 million civil servants?
Well, they are still there!
And they have to be paid!
In other words, while the Italian economy is falling, their government collects less
and less taxes, but spending remains the same.
SO what does this mean?
It means Italy is now the 4th most indebted country on the planet.
Their public debt is over 130% of their GDP.
And this, my dear viewers, is just CRAZY!
Italy Is Europe's Next Big Problem
So now the question is…
Should Italy abandon the euro so they can go back to their devaluation and cheap
manufacturing model?
Or maybe they should follow the German model and let their companies innovate?
Please, leave your answer in the comment section below.
And… sorry what did you just say?
You don’t know how the German economic model works?
Oh come on, just click on this other video and you’ll learn everything you need to
know about Germany’s economy!
Also don’t forget to visit the RECONSIDER MEDIA podcast, the podcast that provided the
voices in this video that are not mine.
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