At the Columbia University in New York I have recently met many young, skilful and well-trained Italians, who are very worried about the future of their country.
Currently the Italian Statistics Institute (ISTAT) tells us that the cost of training multiplied by the number of Italian researchers abroad amounts to over one billion euros a year.
Every year approximately 3,000 researchers leave Italy for other countries – the well-known “brain drain”. We lose 16.2% of researchers trained in Italy, but we succeed in attracting only 3% of scientists from other countries.
The reasons which underlie this situation are the following: old-fashioned universities, exam-rigging, corruption and nepotism, never-ending public competitions and ridiculous salaries.
The “brain drain reversal scheme” started by the government back in 2001, has convinced only 488 researchers to come back to Italy, of whom less than a quarter decided to prolong their stay in Italy for the following four years.
A student at the Columbia University told me “we need to start a revolution”. It is true, but we need to agree on the meaning of this remark.
No other country in the West is undergoing a structural crisis like Italy – and recession is looming large. The current Purchasing Managers Index, which measures the manufacturing activity, is at its lowest level over the last four years, in Italy as in the rest of the world.
Hence a very severe crisis of the whole Euro area is expected, while Italy will distribute an ever decreasing GDP that will be reduced to nothing in the near future.
Hence obviously the redundancy Fund shall be increased significantly and the public debt, which is already under pressure, will immediately sky-rocket.
The VAT cannot but increase by 12.5 billion euros – a “safeguard clause” that cannot be met otherwise.
According to the estimates made by some research centres, the VAT increases – 23.1 billion euros for 2020 and 28.7 billion euros for 2021 – will naturally entail a 1,200 euro annual extra-cost per each household.
Young people will be the most penalized, considering the low wages and salaries they normally earn – if any.
It is self-evident that if the VAT increases, the propensity to buy decreases – and this would happen precisely in a recessionary phase.
Economic masochism, but probably inevitable when you are wrong in defining the public budget composition, as is currently the case.
Furthermore, within a framework of fully negative forecasts for Italy’s economy, the OECD report of April 2019 has been made public.
The topics are well-known, given the wide media coverage, but it is good to examine them analytically.
In particular, the OECD recommends to work on institutional, economic and social reforms, which have been debated in recent years.
This means and immediate and strict simplification of the government system – probably including a one-chamber parliamentary system, but not in the regional devolution sense envisaged by former Prime Minister Renzi’s proposal – tax reform and regional simplification with only two or three macro-regions.
Nevertheless reducing the Regions’ spending powers is an essential issue, currently still capable of redressing public budgets.
The OECD also recommends a medium-term budget plan within the framework of the EU Growth Pact.
This means that a program is proposed to correct the annual imbalances with respect to the Maastricht rules and to the other European financial treaties.
Said program, however, envisages budget cuts that no one knows whether they are possible.
It is equally true, however, that – according to the current government’s rhetoric and storytelling – these are Draconian rules and measures for Italy.
Nevertheless we need to refinance a huge public debt and at the best rates – hence we can only follow the rule of the great football coach, Nereo Rocco: “kick and run”.
Control of debt securities sale, reduction of public spending and analysis of its effectiveness.
The sooner we enter the Euro comfort zone and safety area – without ridiculous pseudo-economic theories – the better.
Furthermore, the OECD asks Italy to implement measures designed to foster productivity. It is an excellent proposal but, from 2010 to 2016, productivity in Italy increased only by 0.14% a year – which means virtually nothing.
Here we go back to the issue of science and innovation, which Italy is unable to retain in the country, thus forcing the young researchers who produce them to leave.
The main reason for it is the excessive fragmentation of companies which, due to their small size, cannot invest in innovation, but rather focus on the gradual specialization of low-tech traditional productions, which will soon be swept away by international competition.
It should be recalled that in Germany the graduates’ unemployment rate is 2-4%, as against the Italian one which ranges between 8% and 13%.
Moreover, in Italy the number of humanities graduates is twice as much as in Germany.
Once again, quantity does not favour quality. Quite the reverse.
Another OECD request is to fully implement the reform of cooperative banks (BCC), also known as banche popolari.
It is really a thorny issue. Certainly cooperative banks (BCC) must be placed in a position to face and withstand the other types of banks.
There is the widespread feeling, however, that much of the cooperative banks’ capital (currently the number of members in Italy is equal to as many as 1.3 million) is strongly desired by larger and currently less capitalized banks.
Italian banks had the Supervisory Authority of the Bank of Italy when their European competitors resorted to the usual consulting firms.
Hence there should be a good reason why the network of cooperative banks is successful, while the network of ordinary banks has a smaller capital allocation ability.
Hence obviously the OECD basically wants the recapitalization of Italian banks “by other means”, i.e. with the cooperative banks’ liquidity, which is on average higher.
It is by no mere coincidence that 63% of Italian high-risk banks are in favour of the cooperative banks’ reform.
Another key aspect of the OECD recommendations is the abolition of the so-called “quota 100″early-retirement scheme intended for employees aged at least 62 and having accrued at least 38 years of social security contributions..
Certainly, from Mario Monti’s government onwards, the Fornero pension reform has been the State’s way to “swell its coffers”.
The impact of “quota 100”, however, is significant on public accounts, if we consider the expected deficit of 17 billion euros. Furthermore, with this schemethere is the risk of an early retirement of civil servants that the Public Administration can partly replace, but the Municipalities cannot replace at all.
Without changing the Fornero pension reform, over the next two years 500, 000 civil servants would retire from the Public Administration. Currently, however, the “quota 100″early-retirement scheme costs one billion euros for SMEs alone, in terms of severance pay. Nevertheless, with “quota 100”, the State shall pay 335,000 pensions more than expected.
Hence spending will rise to 4.7 billion euros and we do not know yet where this money can be found.
Moreover, the OECD considers “quota 100” a generational injustice, given the different economic treatment granted to the various pensioners.
Nor does it seem credible that any job vacated by a pensioner is ipso facto filled by a young person.
This is tantamount to applying to pensions the “voodoo economics” with which George Bush senior referred to Ronald Reagan’s economic and tax policies.
Certainly the “quota 100” early-retirement scheme will reduce staff in hospitals, schools, courts and municipalities significantly.
And there are no real and cheap alternative options to solve the issue.
Moreover, as natural, the OECD recommends to reduce tax amnesties, but also asks for a very interesting measure, i.e. to improve the coordination of the bodies dealing with taxation.
This is a dual problem certainly requiring to organize the bodies, but also to simplify and streamline rules and regulations.
For example, a standard tax system for each activity can be defined and the taxpayers’ data in relation to this tax benchmark can be later checked.
Without tax simplification, there will never be tax fairness and equity. Currently the tax rate on limited liability companies increases by 14%, while the flat-rate regime decreases and the minimum tax bases increase. Everything is fine but, if we do not deal with taxation on natural persons, there will always be a big problem of tax injustice.
With specific reference to the public investment that the OECD requires, reference must be made to my old friend Paolo Savona and his plan to set aside 50 billion of savings from treasury bonds (BTP) and other securities to be invested in infrastructure.
That plan on which he had been working, was immediately shelved because the Five Star Movement members cringe whenever they hear people talking about infrastructure to be built.
Savona was also thinking of introducing the so-called mini-BOT, named after Italy’s short-term treasury bills -the quasi-parallel currency also permitted by the EU regulations, which leads to investment and growth.
It was not possible to implement that plan and this already bears witness to the conceptual and practical narrowness of the current government.
Once again, no imagination and above all no technical knowledge of problems.
What about the so-called “reddito di cittadinanza” – a citizen basic income which is conditional upon undertaking “unpaid work” in community-based services? It can be implemented, although it is an expensive and probably useless measure.
I share the OECD view according to which it is an artificial increase in the minimum labour income which, however, many small companies will not accept.
They will prefer not to hire rather than paying wages and salaries competing with the “reddito di cittadinanza”.
Hence we will easily reach a situation of massive support for long-term unemployment, which will discourage many individuals from undertaking productive work since they would earn less than the “reddito di cittadinanza”.
Mass poverty, however, does exist, and it mainly results from the fact that, since 1999, 25% of Italy’s production system has moved abroad.
The OECD also wants to reduce the “tax wedge”.
It is an excellent idea that is partly already envisaged by the current tax legislation.
However, what about workers having a good share of their wages and salaries without tax wedge, in exchange for a normal tax return?
Certainly there are obvious dangers, but entrepreneurs would gain a good share of tax-insurance costs and employees would pay their taxes independently.
Another problem to be discussed is the OECD proposal to gradually lower the “reddito di cittadinanza” and, at the same time, introduce a subsidy for low-income workers.
It is a good, albeit abstract idea: in principle, those having low labour incomes cannot invest in their training.
Furthermore the subsidy to workers favours the employers’ tendency to lower wages and hence produces adverse and costly effects.
It is better to make investment in the education and training sector open to workers or even to provide tax support to have access to the refresher courses organized by the trade unions.
Finally, the OECD confronts Italy with its long-standing problems: the per capita GDP is at the same level of 2000, when we introduced the Euro, but it is anyway clearly below the pre-crisis level.
Therefore each negative cycle leaves us poorer and less industrialized.
And hence less able to face our social needs: poverty; the aging of population and the increase in the number of elderly people; the young researchers who leave the country.
The OECD recommends to provide subsidies to workers.
Nevertheless, we need to be careful: if entrepreneurs get used to paying a “political” price for wages and salaries, the whole system will collapse.
The OECD envisages a living wage that is worth 70% of the average wage.
Will it be enough? However, it shall be linked to a salary already active in companies or also in the Public Administration which – as university researchers know all too well – currently lives on unpaid work.
But certainly the State must tackle the wage crisis and supplement wages and salaries with the reduction of the tax wedge – with the aforementioned mechanisms and also with ad hoc funds for the most crisis-stricken sectors.
Certainly an aggressive operation – like the one designed and planned by Hitler’s banker, Hjalmar Schacht, with the “MEFA” securities, which were “private” bills payable by banks – would not be a bad idea.
A great deal of imagination will be needed here, because currently all the old theories of economic “balance” do no longer apply.
The OECD also thinks that the regional development funds must be added to those inside ordinary expenses. Currently, however, they are both lacking. Where are the funds to make them effective?
In short, if we abandon the current policy based on “all power to the imagination” and study problems more carefully, we will probably make a few steps forward.
U.S. President Trump to meet Bulgaria’s Prime Minister at the White House: What to expect?
Next Monday, 25 November, President Trump will welcome Bulgarian Prime Minister Borissov at the White House for a bilateral meeting.
This is not the first White House visit for Bulgaria’s Prime Minister Boyko Borissov who previously met President Obama at the White House in 2012.
The White House press secretary has announced that Trump and Borissov plan to discuss security in the Black Sea region, energy and countering malign influence – all Russia-related topics, as one would expect.
The real reason for the White House treat, however, is Bulgaria’s substantial purchase of US aircraft this year.
In August, Bulgaria bought eight F-16 airplanes from the US for the hefty price of USD 1.2bln. White House meetings with foreign leaders represent special thanks for something a foreign country has done for the United States and the F-16 airplanes purchase seems to be what we are looking at here. The US is a happy seller and Bulgaria is a happy customer.
In the area of energy, Bulgaria is looking towards the US while trying to reach energy diversification and gain independence from Russian natural gas. On this, there is a clear intersection with US interests. Bulgaria agreed in May to purchase natural gas from the US for the first time. Bulgarian Prime Minister Borissov met last week with the US Ambassador to Greece to explore the possibility of purchases of American liquid gas down the line.
What is not mentioned by the official White House position is that visa restrictions will be a topic of the meeting, too. The Bulgarian Prime Minister will likely request that President Trump dropped the visa requirements for Bulgarians – an issue the Bulgarian government has been chasing for a while now and something which Bulgarian President Radev had raised with President Trump also on the sidelines of the UN General Assembly in September. Visa restrictions were removed for Polish citizens last month. The Bulgarian Prime Minister will seek the same outcome. On this point, it is unlikely that President Trump would give the green light though.
What we won’t hear about publicly is the issue of the return of ISIS fighters to Europe. No one in Bulgaria really talks about this but one can imagine this is an issue for the US government. Bulgaria doesn’t have a problem with ISIS fighters itself but, as an EU external border country, it is Turkey’s neighbor and the closest to the Middle East EU ground entry point. Last week, Turkey began returning ISIS fighters back to Europe and President Trump has been adamant that European nations with ISIS fighters need to take responsibility for them. Western European EU countries do not want their ISIS fighters back to try them in court or to reintegrate them, which is understandable but also irritating because Europeans have had the unfounded expectation that the US would somehow take care of this. How Bulgaria as an EU country at the crossroads between Turkey, the EU and the US handles that is key. No one in Bulgaria really talks about it, and the various EU, US and Turkish pressures on Bulgaria are not really known, but one can imagine the situation is that of being between a rock and a hard place. So, the return of ISIS fighters is another issue to look out for, although it will not come through in public.
In the past, NATO ally Bulgaria has aided the US with criminal and law enforcement investigations in the areas of terrorism, drug trafficking and human trafficking. This is another area to look out for.
President Trump’s impeachment is not really a topic in Bulgaria, as no one here seems to be concerned with that. It will be interesting whether Prime Minister Borissov would mention this at all to issue words of support to President Trump. This is something that President Trump would appreciate, although protocol says Prime Minister Borissov would be smart to steer away from impeachment comments.
Direct, to the point and simple words can be expected from President Trump. Prime Minister Borissov, on the other hand, is learning English so the meeting will necessarily have a Bulgarian interpreter. Expect one or two jokes by President Trump about simultaneous Bulgarian interpretation. The meeting will not pass without that.
EU chief prosecutor Laura Kovesi needs media freedom to do her job
Last month, Laura Codruta Kovesi, the former chief prosecutor of Romania’s National Anti-corruption Directorate, was officially confirmed as the first ever EU chief prosecutor to head the newly created European Public Prosecutor’s Office. Her team will start work in the end of 2020.
Kovesi will shake things up. She has a lot of hurdles to overcome. Among the main ones is the silencing and stifling of journalists across Europe, including in Bulgaria. The lack of media freedom will make it exceptionally difficult for Kovesi to do her job and uncover crimes involving EU funding.
As soon as the news hit that Kovesi was to become EU’s top prosecutor, anti-corruption activists across Europe applauded loudly. One could hear the applause also in Bulgaria where we face issues with EU funds misappropriation and theft but also complaints regarding the freedom of the press – a place where Kovesi’s work is much needed.
Defined institutionally, Kovesi’s mandate is “to investigate, prosecute and bring to judgment crimes against the EU budget, such as fraud, corruption or serious cross-border VAT fraud”. The EU’s top prosecutor is tasked with the tough job of going after crimes involving EU money.
It might sound as a disappointment to many, but Kovesi will not have the institutional competence to address everything that is wrong with a country or a sector. Corruption and fraud are covered by the EU prosecutor’s mandate only as long as they are related to EU funds.
So if Kovesi won’t be a see-it-all, do-it-all messiah, where does this leave media freedom then and why am I talking about it in the context of her job?
Well, bringing to justice crimes related to EU funds is almost impossible without the leads on the ground – work often done by a functioning free media and hard-hitting investigative journalism that uncovers fishy deals and contracts. It is journalists that sometimes lead the way. Often media investigations chart a course for criminal investigations. The media is a key ally in uncovering crimes involving EU funds. This is particularly true of a service such as the EU’s prosecutor office that will operate from EU headquarters and will rely on leads and allies on the ground.
We can’t expect that an EU service will get all the intricate, hidden local information on its own or through cooperation with the state authorities in question. This is where media and journalists come in.
Bulgaria – as sad I am to say this – gives a clear illustration of why Kovesi’s job could prove to be especially tough. The country ranks 111th in the world in terms of media freedom, according to Reporters without Borders.
To illustrate the situation, one should look no further than the current scandal involving the nomination of Bulgaria’s own chief prosecutor and the simultaneous firing of a seasoned journalist who has been critical of the only candidate for Bulgaria’s top prosecutor post.
As reported by Reuters, the national radio journalist Silvia Velikova was fired for allegedly being critical of the work of the deputy chief prosecutor Ivan Geshev, who has already been selected to become Bulgaria’s next chief prosecutor. Bulgaria’s President Rumen Radev vetoed the appointment last week, so now the country is facing judicial uncertainty and protests such as the ones from today.
Among the reasons why the chief prosecutor’s appointment has been controversial – to say the least – is the sacking of the Bulgarian Radio journalist Silvia Velikova. Her ousting caused protests by Bulgarian journalists which I have been attending, while the capital Sofia saw thousands of protesters marching in the streets against Geshev’s nomination in September, October and now, after the presidential veto.
Where the story gets interesting or horrific – or both – is that as many as four unnamed individuals made phone calls in September to the Director of the National Radio, allegedly asking for the journalist critical of the prosecutor candidate to be fired, or at least to be silenced until Geshev’s selection as chief prosecutor. The journalist Velikova was subsequently fired. She was reinstated to her post after Prime Minister Boyko Borisov spoke in her defence. And the Director of the National Radio was himself fired for stepping over by a media oversight organ.
In Bulgaria, a persistent complaint is that journalists who ask the inconvenient questions can be removed in a heartbeat, after so much as a phone call. The suspicion remains that shady dealings – not merit – continue to play a significant role in the firings and hirings of Bulgarian journalists.
One should look no further than the stories of investigative journalists Miroluba Benatova and Genka Shikerova. They are both known as hard-hitting investigative journalists that ask the tough questions and uncover corruption and mismanagement. They are both out of job after being pressured to quit a mainstream media.
Genka Shikerova faced severe intimidation over the years, as her car was set on fire not once but twice, in 2013 and 2014, in relation to her work on Bulgaria’s significant anti-government protests during these years.
Miroluba Benatova, on the other hand, caused massive waves with her recent revelation that she has become a taxi driver – only to surprise foreign tourists about how politically astute and knowledgeable Bulgarian taxi drivers are. “The service in Bulgaria has improved greatly”, told her a German tourist assuming he was being driven by just a regular taxi driver.
So, how is this related to Kovesi?
It is unlikely that by driving a taxi Benatova will be coming across many leads about EU funds theft, to assist Kovesi. Such a waste of talent, and also funds.
The media across Europe has a key role to play in supporting the work of the new EU prosecutor. As long as journalists in countries like Bulgaria lack the freedom to do their jobs, crimes involving EU funding will go uncovered. If Laura Kovesi wants to succeed in her new job, she will have to take context into account and recognize that in many EU states, including Bulgaria, journalists are often not allowed to do their jobs and ask the hard questions. And that’s a shame because Kovesi will not be able to do it alone.
Why German car giant Volkswagen should drop Turkey
War and aggression are not only questions of ethics and humanitarian disaster. They are bad news for business.
The German car giant Volkwagen whose business model is built on consumer appeal had to stop and pause when Turkey attacked the Kurds in Syria. A USD 1.4bln Volkswagen investment in a new plant in Turkey is being put on hold by the management, and rightly so.
Unlike business areas more or less immune from consumer pressure – like some financial sectors, for example – car buying is a people thing. It is done by regular people who follow the news and don’t want to stimulate and associate themselves with crimes against humanity and war crimes through their purchases. Investing in a militarily aggressive country simply is bad for an international brand.
As soon as the news hit that Turkey would be starting their military invasion against the Kurds, questions about plans for genocide appeared in the public discourse space. Investing over a billion in such a political climate does not make sense.
By investing into a new plant next to Turkish city Izmir, Volkswagen is not risking security so much. Izmir itself is far removed from Turkey’s southern border — although terrorist attacks in the current environment are generally not out of the question.
The risk question rather lies elsewhere. Business likes stability and predictability. Aggressive economic sanctions which are likely to be imposed on Turkey by the EU and the US would affect many economic and business aspects which the company has to factor in. Two weeks ago the US House of Representatives already voted to impose sanctions on Turkey, which now leaves the Senate to vote on an identical resolution.
Economic sanctions affect negatively the purchasing power of the population. And Volkswagen’s new business would rely greatly on the Turkish client in a market of over 80mln people.
Sanctions also have a psychological “buckle-up” effect on customers in economies “under siege”, whereby clients are less likely to want to splurge on a new car in strenuous times.
Volkswagen is a German but also a European company. Its decision will signal clearly if it lives by the EU values of support for human rights, or it decides to look the other way and put business first.
But is not only about reputational damage, which Volkswagen seems to be concerned with. There are real business counter-arguments which coincide with anti-war concerns.
Dogus Otomotiv, the Turkish distributor of VW vehicles, fell as much as 6.5% in Istanbul trading after the news for the Turkish offensive.
Apart from their effects on the Turkish consumer, economic sanctions will also likely keep Turkey away from international capital markets.
There is also the question of an EU company investing outside the EU, which has raised eyebrows. It is up to the European Commission now to decide whether the Volkswagen deal in Turkey can go forward after a complaint was filed. Turkey offered the German conglomerate a generous 400mln euro subsidy which is a problem when it comes to the EU rules and regulations on competition.
The Chairman of the EPP Group in the European Parliament, Manfred Weber filed a complaint with the EU competition Commissioner about the deal, on the basis of non-compliance with EU competition rules. Turkey’s plans to subsidize Volkswagen clearly run counter EU rules and the EU Commission can stop the 1bln deal, if it so decides.
In a context where Turkey takes care of 4mln refugees — subject to an agreement with the EU — and often threatens the EU that it would “open the gates”, it is not clear if the Commission would muster the guts to say no, however. In that sense, the German company’s own decision to pull from the deal would be welcome because the Commission itself wouldn’t have to pronounce on the issue and risk angering Turkey.
While some commentators do not believe that Volkswagen would scrap altogether the investment and is only delaying the decision, it is worth remembering that the Syria conflict is a complex, multi-player conflict which has gone on for more than 8 years. Turkey’s entry in Syria is unlikely to end in a month. Erdogan has communicated his intention to stay in Syria until the Kurds back down.
In October it was reported that the Turkish forces are already using chemical weapons on the Kurdish population which potentially makes Turkish President Erdogan a war criminal. For a corporate giant like Volkswagen, giving an economic boost for such a state would mean indirectly supporting war crimes.
As Kurdish forces struck a deal for protection with the Syrian Assad forces, this seems to be anything but a slow-down. Turkey has just thrown a whole lot of wood into the fire.
Volkswagen will find itself “monitoring” the situation for a long time. There is a case for making the sustainable business decision to drop the risky deal altogether, soon.
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