Italy’s Own Goal: Guest post by Joseph Halevi

The Eurozone’s idiocy is obvious to all those with eyes and ears. It can be witnessed anywhere we turn these days: from the evolving bank run to the non-debate on eurobonds. Joseph Halevi, friend, co-author and serial guest of this blog, just sent me a missive that offers new insights into our continent’s infinite inanity: Italy’s major own-goal in consenting to (what I call) the fiscal waterboarding of Greece, Portugal and Spain. Here is Joseph’s note (with some additions by yours truly):

Last year the Italian Confederation of Industry threw themselves behind all the EU decisions in regard to Greece, Portugal, Spain. Thus they supported deflationary policies in regions where Italy has big (albeit shrinking) net export surpluses (which have been acting as a buffer in relation to its expanding deficit vis-à-vis Germany).

Suppose Il Sole 24 Ore, the daily of the Italian Confindustria,  were to host on its front page a headline like: “In the US the financially strapped states are imploding and they account for 33% of Italy’s exports”. Panic would ensue with hundreds of articles flooding the Italian press. Well, this is precisely the situation in relation to Greece: Looking at 2008 figures, it turns out that Greece was absorbing Italian goods and services (mainly goods) equal in value to those that 100 million Americans consumed (i.e. Italy’s exports to Greece equalled 33% of Italy’s exports to the United States!).

In 2011, according to UN Comtrade, Italy’s exports to Greece fell by 46% compared to 2008; the natural victim of Greece’s implosion. In terms of the Italy-Greece balance of trade, whereas Italy’s export (to Greece)-to-import (from Greece) ratio was 5 to 1 in 2008, the Greek crisis reduced this to 2 to 1. Some Greeks may think that this is a good thing, in that Greece’s balance of trade has improved. But it isn’t really. Such shifts constitute improvements when there is an shift in relative competitiveness. When, for example, Greek goods improve in quality, relative to Italian ones, or when Greek production processes become more cost effective. But nothing of the sort applies here. The reason Italy’s balance of trade surplus with Greece collapsed was because Greece collapsed. Pure and simple. In this sense, a nuclear explosion that wiped out Greece, would totally eliminate its trade deficit. Would that be progress? No, it would not. Neither for Greece nor for Italy.

A similar story can be told in relation to the bilateral trade between Italy and Spain, Italy and Portugal, Italy and Cyprus (soon to ask for a bailout). Southern Europe and France were the safest areas for Italy’s net exports within the Eurozone. In the remaining Europe (north of the Alps), Italy could only compete via devaluing the lira (a main reason why Germany insisted on Italy’s inclusion in the Eurozone).

It is clear that Italy (both under Berlusconi and Monti) was keen to be seen to be part of Europe’s core. To that purpose, its leaders felt that they must be seen to be on the ‘right’ side of the waterboarding of Greece, Spain and Portugal. Alas, by supporting the troika’s policies, Italy turned against its own interests and, thus, contributed to its own demise in areas which hitherto generated hefty profits on the export balance. Even though it hates to admit it, Italy has already joined the ‘waterboarding experience’ on the ‘receiving’ side; taking its place amongst its victims (Greece, Spain and Portugal), patiently waiting to be waterboarded until all economic life is squeezed out of it.


  • Well, Greece has made dramatic trade improvements with certain countries.

    Without mentioning names(to avoid raising a storm), Greece has been able to come from a seriously negative trade position into a 2:1 advantage of exports to imports representing a 246%+ growth(year over year).

    As far as intra-European trade is concerned, obviously Greece’s task is cut all European imports as much as possible, while exponentially growing its trade with non-EU countries. Which is already happening but due to the sensitivities involved no names will be used.

    To put it in simple terms, Greece’s goals are:

    1. to increase or maintain her European export levels.
    2. To diminish (if possibly to zero) all European imports.
    3. Exponentially grow non-EU exports.

    And this is already underway, in fact with spectacular results in non-EU trade.

    • I did not know that there are such visible results of the painful adjustment process. Do you happen to have a link to a newspaper article (or ECB paper or otherwise) with more details?

    • Martin:

      The figures I have are all based on very detailed spreadsheets showing trade by country, by volume and many other useful metrics; all originating from the official statistical service of said countries.

      Sadly, Greek figures don’t break down trade volume by country very well and so one has to go to the countries that Greece is trading with. They do much better job at reporting Greek numbers as they relate to such countries.

      As I stated before this is a very positive thing for Greek trade, in fact so positive that the affected countries might feel exploited; therefore I would rather not share openly and not with people with whom I have very little trust as to motivations and agendas.

      The comprise I can do is to share those figures with Yani (I have his e-mail) and let him indeed attest to their validity.

      The official statistical services of non-EU countries are doing a great job in keeping tract of all their international trade by trading partner and they break it down by month going back to several years; so one could follow the natural evolution of trade.

      Looking at these figures, there is one thing I can tell you with certainty. The future of Greek exports rests, without a shred of a doubt, with non-EU countries. And Greece’s share of EU imports has shrunk dramatically in the order of 50% or so (in some cases even higher).

    • “The future of Greek exports rests, without a shred of a doubt, with non-EU countries.”

      So Greek exports are depending on international economic conditions and on the price of the euro.I dont see why one would be confident over this,to tell you the truth.

    • @Crossover:
      I am not surprised that the import / export ratio of Greece has changed. But I was surprised to hear the changes were already so visible.

      Thanks a lot for your reply. I’d have thought that either, there are publicly available sources for your claim – and in that case you could share them even with a person like me.
      Or there are no such sources – and then your claim is your personal opinion which may turn out to be right or not. But it wouldn’t be what I’d consider a fact.

    • Martin:

      Indeed the sources are public. Anyone could access.

      But here is my problem in mentioning names. The swing from a trade deficit to a trade surplus for Greece has been so dramatic which raises issues of reciprocity by said countries.

      Well, you might argue: everyone ought to understand at this stage that Greece could ill-afford to increase imports (thus providing its trading partners with reciprocity) whereas increasing Greek exports sounds like a reasonable expectation.

      However, geopolitics complicate commercial reasoning. And it would be quite imprudent for me and perhaps damaging to Greece to air out such an advantage for Greece which almost immediately would be countered to Greece’s disadvantage.

      The sources are there for everyone. You just need to do a bit of synthesis and put it all together. Just pick a non-EU country with which Greece could be a likely trading partner and go to such country’s official statistical service (in Greece’s case it’s called ElStat (Ellada Statistics)) and seek data showing overall monthly and yearly trading volumes by country. Don’t expect Greece to be highlighted because such statistics are not about Greece, rather about all other countries trading with said country; but it’s all in there.

      Sorry for such reply. In fact I could post one example for you to see but I am so very hesitant to do so. Apart for satisfying some ego point that “hey, we got something here”, my brain says “don’t do it”.

    • Dear Dean
      Thanks a lot for your reply. I think you worry too much. If there were signs that the Greek trade balance was getting healthier, I don’t think anybody in his/her right mind would start shouting at Greece for “weakening their trading partner” or anything like that. That would be too crazy, even by EU standards.
      After all, a healthier import/export balance for Greece would mirror that the ultra-painful adjustment process is showing at least some positive results.
      I think pointing this out would strengthen Greece’s position more than anything else. It would appear less as a “hopeless case” and more as a patient who is still in a life-threating crisis but is showing at least some promising signs of a recovery in some areas (while overall, the situation remains critical).

      The others in the EU would be happy to see that at least in this area, Greece is developing in a good way.
      I strongly believe you are totally wrong if you assume that the EU (and Germany in particular) would want to see Greece destroyed.
      The aim most would agree on is a healthy, growing and stable Greece (but long term without major transfers from the rest). Anything that was likely to show Greece was maybe on the right way (even if only in the area of import/export) would be fantastic news.
      There really hasn’t been much news in relation to Greece that hasn’t been plain awful.
      If there’s a success, be happy and proud about it – and share it! (just my humble opinion)

    • Martin:

      In that case, send me your e-mail and I will send it to you. My e-mail is part of the public domain, so Google my name and it will probably be there.

      However, the criticism will not come from the EU. The criticism will come from the non-EU countries experiencing a trade imbalance with Greece.

      And of course this is not a success story for Greece as you put it. Because in your eagerness to declare that the remedy was right for Greece, I am sure it will take you less than a fraction of a second to declare it as a German success.

      Nevertheless, (even if you think Greeks are dumb) send me over your e-mail address and will reply. No need to do so in public space, plus the spreadsheets that I will need to attach can not be posted in public space because they are in my hard drive. But they fit nicely as an e-mail attachment.

      As I said, I know that you as a good German you have a drug habit called “need for data”. So, your satisfaction is guaranteed, trust me on this.

    • BTW, Martin:

      In case your Google search does not yield much, try this:…/cd529544-051a-407d-8188-711d534…

      The e-mail is indicated on the right hand-side of the cover fax sheet (4th from the top). The reason I don’t type it is to avoid unauthorized searches(spiders) picking it up.

    • Martin, Greece hasn’t got borders with the arctic ice. The whole area is heating up round here.
      I think that is our main problem right now. Far more serious than the economic one. But made far more complicated by it.

    • @ Martin
      You are absolutely right that Greece and the world would benefit from any good news like those that Dean mentions. I too have noticed a small improvement in the latest report of the central bank of Greece. The problem is that non-EU exports are a small percentage of total Greece exports. Any improvement is welcome however. This improvement would also be bound to continue under normal conditions and provide additional relief for the economy. A weakening euro is also very much welcome in this regard. In fact the latest drop of the euro against the dollar may save Greek tourism this year. Bad press more than anything has significantly hurt tourist reservations from the EU. Non EU reservations have actually picked up in the last month and may save the season yet. In some areas i hear that Greek hotels are actually cheaper than Turkey’s something that has not happened for a while and was really hurting Greek tourism.

      However as I mentioned earlier the improvement in non-EU exports could further improve under normal conditions. We do not have these conditions in Greece or the rest of Europe. Under the extreme conditions we live in, liquidity has become scarce. Banks provide zero credit whatsoever and there is absolutely no new investment. Businesses are struggling day to day to stay afloat and their primary goal right now is to safeguard what little cash flow they have and pay back outstanding loans. Your basic deleveraging process that unfortunately is underway in the whole spectrum of the economy contributing to the depression. This cannot possibly go on for long. Greece is basically operating without a banking sector.

      This situation is bound to enter a critical stage unless somehow the banking sector is restored even to a basic level of operation. There are opportunities in Greece, there are ideas, there is potential. There is absolutely no way right now for anyone to invest on this potential without a banking sector willing and able to assist the investment process with new investment loans to the private sector.

      So there are some good news like Dean wrote but I doubt that there will be any come the next quarters unless something significantly changes concerning the process of private investment in Greece. You will note that I am only focusing on private investment since I have zero faith in the ability or the capacity of public investment in Greece to restore the economy.

  • In Ireland we happily do our own waterboarding on our own people, it was hard to take to see our Europhile leaders and ministers out joyfully celebrating their “win” a further loss of sovereignty and the right to get deeper into debt as they jockey for position to put what was sold to the Irish electorate as “an insurance policy”. Some insurance policy? Nobody knows if there is going to be enough money in the fund (ESM) to pay for the collapse of Spain and Italy not to mention Greece which like in Hotel California could book in any time it liked but can never leave. Meanwhile Ireland pays it’s first installment of 5 installments totaling 11bn by taking money from it’s first bailout bit like Greece being “bailed out” so they could bailout their creditors banks while becoming progressively poorer themselves.

  • I’m German (will become apparent through the contents of my post anyway so I guess it’s only fair to state it up front.
    If you assume that Greece and Italy are essentially in the same situation (with Greece just, say, 3 Years further down the road to disaster) then of course, softening the EU’s approach towards Greece would evidently be in Italy’s interest.
    I think that Italy is in serious danger and if things developed badly, Italy could be where Greece is now in 3-5 Years from now. But that would be an absolute worst case scenario.

    Berlusconi’s gone and the way the new government seems to be trying to implement measures to save Italy from Greece’s fate makes me a lot more optimistic for Italy.

    From a German perspective, Italy has always been a bit of a mystery:
    On the one hand inefficient, in the claws of the Mafia, corrupt, etc.

    On the other hand it’s still got some world-class enterprises and really does possess an industrial base. That base is not in perfect shape – but it’s there and e.g. the way Fiat cars has managed to survive against the odds (and I’m sure there are many more examples like that) shows some real determination and skill. There are also a lot of medium-sized companies in Italy some of which are very strong in their niche.

    All this applies primarily to the North while the south does not seem to progress too much in the desired process of catching up with the north of the country – for reasons I don’t quite understand.

    Anyway, to generalise thing drastically, Italy consists of a Greece-like southern part and a northern part that is at least on the same level as France overall or Germany and e.g. the Netherlands.

    So the hope for Italy is that it has proven it can do it – it’s a reality in the north of the country.

    Being a foreigner, I don’t truly understand what’s holding the south back. But on the other hand, most countries have regions that seriously lag the national standard of development. Germany’s east and parts of the west and north are about as far behind as Italy’s south.

    So it’s possible to survive even if you have partly dysfunctional regions!

    With the worst case scenario for Italy being the Greek path, the best case would be that the crisis kick-starts certain inevitable structural reforms, a fight against inefficiency and corruption and the mafia.

    Italy has been over-indebted for years and so far skilfully managed avoiding getting in the death-spiral Greek style. There is a lot of skill and, yes, will to do what’s necessary for the good of the Italian nation in the Italian elite. This has – at least so far – been enough to keep the tendencies in check that would lead Italy to follow Greece in national self-destruction.

    To sum things up, I believe Italy overall is in a very different situation than Greece. Italy’s prospects are drastically better – Italy can really make it if they take the necessary actions to avert disaster – and so far it seems to me like Italy’s got the class to do what needs to be done.

    And it’s got the e onomic base to do it as a nation – and it’s not as incompetitive as Greece. So the necessary adjustment process will be a lot less brutal.

    There’s also a lot more good will around towards Italy: as long as the Northern countries are able to convince themselves that Italy is fighting hard to keep afloat, they will be willing to give Italy the emergency support it may unfortunately need in this painful process.

    I think that Italy being not too sympathetic to Greece’s partly self-inflicted disaster shows resolve to do what it takes and is therefore actually in Italy’s best interest as it ensures the good will of it’s northern partners which may prove necessary in the years to come.

    • I think that you are missing the point of the post. The main point is that collapse in demand in countries like Greece, Portugal, Ireland, Spain even Britain and US is severely hurting Italian exports and greatly reducing its chances of recovery. I think the post goes to show that no single country can recover and escape this situation on its own in this interconnected global economy. That is even more apparent in the common economic space of the eurozone. Deficit countries have to take measures to address the causes of their lack of competitiveness as well as measures to balance the budget. But as you correctly point out competitiveness is a relative term. If everybody is reducing costs and prices in order to become competitive then actually nobody is going to achieve this. The best news on that front is the recent deal discussed for wage rises in Germany. Someone will have to spur growth by increasing demand along with productive investment. Increased demand can only come right now from surplus countries like Germany.

    • Dear Tasos
      For sure the mess is so big and the problem so complex that the solution can’t be to only have the countries with obvious problems (e.g. Greece and Italy) make adjustments.

      If this is supposed to end in any other way than desaster, all sorts of measures need to be taken (among them higher inflation for Germany in order to make the adjustment process for the others easier).

      And, yes, it would be sensible if Germany focused more on its domestic market and brought its current account balance down, helping e.g. Greece and Italy with some additional demand from Germany.

      But Greece and Italy also have loads of homework to do.
      The world does not only consist of the EU – and in fact the most rapidly growing countries are outside the EU (China, India, Indonesia, Brazil, etc).
      So if Greece and Italy became more competitive (regardless of what Germany does) that per se improves the situation of these countries as they will tend to get more demand from the fast growing countries.
      Germany becoming less competitive is not the solution – in many fields Germany and Greece do not compete at all. If German products became less competitive on the world market, this would primarly help e.g. Korea, China and Japan – but not that much Greece.

      My point in the post from June 3rd was to point out the major differences I see between Greece and Italy. I think it would be wrong and unnecessary for Italy to just give up.

    • hi, i write from Italy, if you want to know why italy is rich in the north and poor in the south i can tell that 150 years ago there were 2 civil wars against the south of the country to get the unification, at the end of the game the 3/4 of the gold of the new national bank was from the “poor greece like south”… so now we have the problem to don’t know WHY the south that was distroyed have some problems today, this story is well known in the rest of the world but not in italian schools.

      The problems with euro is very similar to the italian situation, there are very different economic areas from nord to south and is not possible use the same money in one day, from 150 years in italy south is still a different money area (different inflation rate) of the rest of the country (this shit happen when you destroy part of the country to get the unity…). But now we can be happy, without the market of the south the north of italy can collapse (and with the euro the south of italy is collpasing from 10 years).
      There are about 43 mld euro given from the nord to the south (the citizens of the nord pay for the south…) but this 43 mld became 63 mld of sales in the south of products of the north… if the nord stop to send the money and if the south economy get too much in crisis is like a suicide and are happening the both things togheter. The same thing that will happen to this insane europe.

      But maybe is possible that germany politicians (not the citizens that don’t understand the game) want to use the south of europe to have an european underpayed farm to compete with china india brasil etc. like happen in italy with the south that is used from 150 years to have a private market of consumers and a workers source while the citizens of the north believe to work to mantain the pigs of the south.

      If this is the goal the end of italy will be very very very worse of the greece…
      For enter in the euro we italians had a 100% inflation rate in the first day, we payed all the double with the euro one coffe is passed from 1000 lire to one euro (1 euro=2000 lire), and italy is (were) a good market for germany, we have not to ask charity to people that are destroyng all the south of europe while we payed the german reunion.

      Sorry for my english


    • Οbviously giuseppe understands how the game works…Thanks for this.

  • “In the remaining Europe (north of the Alps), Italy could only compete via devaluing the lira (a main reason why Germany insisted on Italy’s inclusion in the Eurozone)”

    Any reputable sources for this claim in brackets?

    • Well, you could try the following:
      A. Start from the (ECB-backed) conclusions & graphs in this NYT article
      B. Read this Spiegel article, where Kohl’s “Not Without the Italians” is ‘sold’ to the German audience as an act of love and redemption
      C. Put two and two together
      Hope NYT, Der Spiegel and your own wits are “reputable” enough.

    • David Marsh’s book on the euro, + the fact of the rising Italian trade surplus until before 1999 when the lock in euro rate of the lira entailed a revaluation of more than 25% relatively to the D Mark. It started to decline in 1999 until it went negative by 2004. Notice that Italy needs a very big merchandise surplus in order to offset the hopeless deficit in energy imports since its power stations are oil fueled, a nice gift of the Christian Democrats to both ENI and the oil companies.

    • @Danny:
      Have you ever thought that introducing the Euro currency and letting Italy in (that struggled meeting the Maastricht criteria but showed a lot of commitment trying the best they could turning a “Greece like” situation in the early 90ies into “just missed the Maastricht criteria”) was not part of an evil German plan?

      The German paper “Der Spiegel” is a tabloid for people with a brain. They do write some intelligent stuff and if anybody’s got explosive information in Fermany about some sort of scandal, “Der Spiegel” is always a good adress to place it.
      But “Der Spiegel” isn’t always right and if they say something, that does not always need to be true. So just because “Der Spiegel” says Kohl wanted Italy in, that doesn’t prove anything.

      My personal opinion is that Kohl genuinely believed in the European unification and was willing to bend the rules to let Italy into the Euro. For the best of intentions.

      Even though he is German. Incredible, that a German could have intentions that are not plain evil?

  • This is all happening because of the solid will of the fat lady for further european integration…

  • Finally, I understand why the nuclear option in war exists at all: to ensure the ultimate and final outcome of capital. For as Joseph Halevi suggests, exterminating a “trade deficit” partner through nuclear annihilation rids that partner of its “trade deficits” just as surely as this simultaneously kills the export opportunities of the “trade surplus” partner. In strict economic terms, clearly, the nuclear option is merely the continuation of austerian economics by other means.

    May we prosper better.

  • Is it pure idiocy, or the poor relative syndrome, or both.Anyway, the Germans are excellent chess players but they are going to lose this war, for the same reason they lost the other two. This time they are doing theit best to rid themselves of consumers,i.e. Their oxygen.

    • Dear Ellinas
      I don’t think that this is any kind of war. Greece is effectively bankrupt and has been since 2010.
      This is nothing Germany invented or intended or initiated.
      In 2010, Greece was no longer able to roll over its debt for conditions it could afford. The interest rate asked for by the markets would have been so high that the debt would have exponentially spiralled out of control (even more so than what has actually happened since then).
      So the EU / ECB / IMF helped and gave Greece loans for conditions that were significantly below what the market would have asked. This was a risk because everybody knew that it is unclear if Greece is ever going to service the debt.
      The Greek contribution for getting the emergency help in early 2010 would have been to try to bring the budget deficit down (quickly) and as well try and do everything it can to kick-start growth and get rid of inefficiencies that prevent the Greek economy from working better. Also, selling as much state owned property as possible (enterprises, land, gold reserves, etc) would have been helpful in order to feed at least a part of Greece’s cash hunger internally.
      That was the deal.
      The EU / ECB / IMF delivered. But Greece did not.
      To state that this is some kind of war and Germany as trying to destroy / harm / whatever Greece is pretty much fantasy.
      Germany and other nations (including some that are actually poorer than Greece) of the EU gave Greece some breathing space in early 2010 by providing Greece with funds to avert bankruptcy which would otherwise have happened already in 2010.
      Greece’s situation was very difficult from 2010 but thew way it has handled it is at least as pathetic as what you criticize as suboptimal handling of the crisis by the EU / ECB / IMF / Germany.

    • Martin

      Please go learn how the system works.
      It is a debt based system. Always.

      Nobody ever has less debt. Only countries like Germany could do with out and because of the kindness of others became what she became and still she has debt.

      WAKE UP.

      I am really bored with you people ,not knowing what you are talking about.

      Global financial collapse is imminent and we are your cover.
      But only temporarily.
      Because it comes. And it’ll get you.
      And you know something? IT GOD DAMN MUST GET YOU.

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