Since several years, the world economy is in a crisis from which it still manages to come out, although periodically it is stated that "the worst is over." It has arrived substantially unexpected, although there were indications that could help to predict it. But, as you know, the economy has been defined by the authoritative British magazine The Economist, the science that studies how  his predictions did not come true.

In fact, it triggered a vicious spiral that, in industrialized countries of the West, caused a financial crisis first, but that has had serious repercussions on the economy so-called real, in the form of recession, resulting in lower consumption, failures before of banks, then of businesses, unemployment, etc. If the worsen leaks, according to some, seem to have been boarded up, we still do not see a general recovery making it possible to reverse the trend. The Authors differ in determining the underlying causes of the crisis, even if they agree on those closest. First has expanded enormously finance, which operates almost without control, allowing very risky speculation. To explain the discontent and widespread loss of confidence, we can say that our society is in the grip of a great crisis of distribution, which has not yet been able to remedy.

After the war it triggered a real race to the well-being, given an ideal to maintain at any price, because its decrease implies a political cost untenable in our democracies, which are governed by the popular consensus. A well-ordered society thrives/prospers until able to distribute fairly well-being that it produces. At the beginning, having to rebuild on the ruins of war, it was easy, thanks to strong increases in productivity and the momentum of reconstruction. Later, it was made use of inflation, which allowed to distribute more money (but devalued) and then, when it was stopped to avoid the perverse effects, it was made recourse to public or private debt (a not so different system). But the distribution of wealth has become increasingly unfair.

This seems to be the true "original sin" of our economic system from which we have not yet managed to release.

The outbreak of abscess

Concretely, the bubble broke in 2008 in the United States where many banks have lent a huge amount of loans to households (many even no income) wishing to purchase a home, and secure, if necessary, to be able to sell it and repay the debt. But when things went wrong, the real estate market collapsed and they were unsaleable. More than 200 banks went bankrupt, including some very great, such as Lehman Brothers, even judged too big to fail. It spreads the panic which the U.S. Government has been remedied by pumping huge/enormous amounts of money into the system, so as to avoid further failures, but the risk of spreading inflation in the world.

In a globalized economy like the current one, the crisis quickly spread to Europe and in particular the weaker countries of the euro area. The European countries are still in fact very different from each other. Greece, the weakest link in the chain, had falsified financial statements in order to join the euro area, and when the nodes have come home to roost/knot to the combt, she found herself on the brink of bankruptcy. Ireland, Portugal and Spain (the country where the banks were also granted huge loans to private buildings) have found themselves in difficulty. The European Union, of which they are part, has given substantial aid, but in exchange for austerity measures that would reduce the public spending and tidy up accounts. That is precisely those measures that governments would never want to take and that, in Greece, led to riots and social unrest.

For Italy, the case is slightly different, in the sense that families are less indebted (we are indeed among  more savers nations) but it is the State to be submerged in debt, the total of which amounted to more than 120% of the entire GDP (Gross Domestic Product), which is greater than all that is produced in a year. Entering into the euro, Italy also undertook to bring down its public debt to 60%, which is, in fact, currently no European government (or the USA) is able to maintain, given the need to spend support the economy. In Italy, however, no bank went bankrupt.

Consequences in Europe

In reality, things are much more complex than what we are describing. The great aid to Greece, at first, were not so much designed to assist the country in need, than how to help the French and German banks that (attracted by the high yields/productions) had purchased large quantities of Greek government bonds (equivalent to Italian Bot and Btp), which might become waste paper in the event of bankruptcy of Greece, overwhelming/carrying away even the banks that had purchased.

The United States, forgetting that he had caused the crisis,  born in their country, then asked with force to Europe to put their house in order, to restarting the world economy. The matter is not so simple. The United States in fact have a government and a central bank that has a real power and whose monetary and credit measures can be imposed on the whole federation. Not so for Europe, at the end of a long and arduous journey of unification, still far from completed, has taken the courageous step of adopting a single currency.

This is possible, and durable, only if you unify the economies and policies, which is not happened. The advantages of the only coin (which hopefully will be irreversible) are obvious and indisputable, but its survival is linked to a greater control over budgets and the measures taken by each State by the central authorities. States are very jealous of their sovereign prerogatives and do not want to lose slices of sovereignty. So it is true that the common monetary politics is decided in Frankfurt, but every State has a different tax regime, may establish retirement age different, very different laws on dismissals and assumptions, and so on.

Unify or standardize all this means creating a political union that European countries seem to have no desire to implement. In addition, each country has its own parliament and its own elections, and before taking unpopular measures (even if necessary) every ruler thinks of the next elections, different from State to State and heavily conditioning.

As far as Italy is concerned, the previous Government has realized that it had lost all international credibility and has had the foresight to resign before being discouraged. It has appointed a group of  'technical' ministers (with an anomaly for a modern democracy) with the task of operating the painful reforms necessary that it would never had the strength to take. In fact, the technical Government only has the power that the parties give, since individual measures must then be approved in Parliament, made up of politicians.

How to regain confidence

The first essential measures taken by the Government, more influential in the international field than the previous, were directed mainly to balance accounts, abolishing such as retirement pensions, existing only in Italy, granted when the Italian economic boom seemed unstoppable, and which of course have to be suppressed. Putting hand to the elimination or  downsizing of very protected castes and guilds, has proved difficult and delicate. In practice, the Italian system is protective for those who already have a job, but penalizing those who do not work anymore and in particular young people. Everyone is in favor of the reforms, provided that they are made at the expense of others, without touching their privileges.

I must also say that incisive reforms involve immediately a sacrifice to those affected, while the benefits to the whole economy are now only estimates, and no one knows when it will occur. Unfortunately the first to give a bad example were the politicians who have worked only meager and very low cuts to their privileges and benefits. In this corporate attitude is added the thought of the upcoming elections in which no party would get severely disadvantaged by approved  measures. Luckily no, for now, the strange coalition that supports Mario Monti, wants to take the blame/fault for dropping a government, believed to be the last chance to put things in order and to regain international credibility.

But if the Government managed to bring its budget deficit enough in order, the way for the second half of the task, that is to restart the economic system in such a way that they make investments,  assuming workers, producing income ..., it's all uphill.

It is in fact instill confidence, without which no one agrees or makes investments, and this does not spread by decree. It is also not a task that depends only by our rulers. The Italian economy, for example, makes much of export, but if things go wrong abroad, few will buy Italian products and so on. It's a delicate game that is played to go out of the crisis, what everyone wants, and to establish rules to prevent this recurrence. All call for new rules, when things go wrong, but they forget as soon as the worst seems to be behind. Furthermore, it immediately begins to fight as soon as you get off the concrete to decide which rules, who should do it and who should make them watch.

Occasion for solidarity

We need to adjust the international speculation, create effective support to Member States in difficulty, give effect to the international solidarity. Also we need to remove some perverse mechanisms. For example, if Italy, which still remains a major industrial power, is considered unreliable due to the high public debt, to raise money on the market (that is to entice/induce you to purchase Bot and BTP) will have to raise remuneration rates, accumulating interest expenses that may be unsustainable in the long run and diverts resources that could have been used to make investments or to reduce debt.

Germany, by contrast, considered to be more robust and reliable, attracts capital that hope to risk much less in that country, even if they are paid ridiculously low rates. The result is that the poorest countries at risk, finance countries that unless they need it, such as Germany, because they see their capital emigrate in search of 'safe' placements. But in the meantime, lacking a view of stability and certainty (especially political), the stock exchanges are excited and speculation rages/unleash daily with a swing that keeps everyone in suspense, and that makes it very difficult to rational economic planning.

The economy therefore needs to regain confidence, but also a soul that makes it more cohesive/in agreement, able to regulate the markets (which have been shown to not be able to do it themselves), and found also in the European Union (the large and positive news over the last 60 years) firmness and fairness that sometimes seems to have lost for the fear of the various components lo lose the well- being acquired and which were at the basis of the great ideal design of its founders. Bringing down the project would be a catastrophe for everyone. In the words of Benedict XVI, the crisis can be a great opportunity to escape creating a better world for all.

GianPaolo Salvini sj
Scrittore di La Civiltà Cattolica
Via di Porta Pinciana, 1 - 00197 Roma