Spain and Italy: Political and Economic Responses to the 2008 Crisis, Guide, Progetti e Ricerche di Economia Politica

Scarica Spain and Italy: Political and Economic Responses to the 2008 Crisis e più Guide, Progetti e Ricerche in PDF di Economia Politica solo su Docsity! SPAIN AND ITALY: A POLITICAL AND ECONOMIACAL COMPARISON ABSTRACT In this paper I will discuss the similarities and differences between Italy and Spain, two countries who received the monicker of PIIGS, based on the economic hardships they faced during the financial crisis of 2008, how they responded to it and if they recovered from it. I will analyze this by looking at their state before the crisis and by looking at their political landscape, to see if there are any differences there and if they mattered in the way they’ve handled the crisis. I’ve also tried to analyze the inequality in wealth distribution in both countries for a period of time of ten years, from 2006, two years before the crisis to 2016, a year in which the two countries should’ve reasonably recovered from it. INTRODUCTION Spain and Italy share a lot of things in common. The warm weather, a culture revolving around family and food and a chronic lack of trust put in them by the Nordic, and richest, European countries. Even the two similarities mentioned above are said to be some of the causes of Italy’s and Spain’s economic struggles. Another commonality was that both countries lived under a fascist regime, but while the Italian regime fell during the Second World War, the Spanish one survived until 1975, so its economy was relatively weak and closed compared to other west-European countries, whom experienced a high degree in integration between themselves starting from the 1950s and received substantial aid through the US-funded Marshall plan, Italy included; Spain nonetheless, even if it wasn’t a recipient of the “Marshall aids”, still received economic aid by the United States, in the context of the Cold War, that helped reinvigorate Spanish economy, even though it still lagged behind its neighbors. Spain was finally integrated in the EEC (European Economic Community) in 1984, alongside Portugal, and after a tumultuous decade of response and reconstruction following the demise of Francisco Franco and the international Oil crises, it knew an extraordinary growth level between 1999 and 2007, what followed was a harsh awakening for the Spanish economy, as the financial crisis of 2008 hit the Spaniards roughly. Italy on the other hand became an industrial powerhouse in the post-war period, but by the early 1990s it started to face growing problems, mainly caused by its internal political problems, such as the “Tangentopoli” scandal that put an end to its former political structure, commonly known as “the first republic” (La prima repubblica); the political landscape that emerged after this crisis proved to be too variegated and unstable, a situation which persisted until and after the 2008 setback. LITERATURE REVIEW In this paper I want to compare the responses of these two countries to the 2008 crisis, so I chose a couple of articles detailing the situation in Spain and Italy before and after the crisis, with a focus on the economic measures adopted by the policymakers. THE 2008 CRISIS IN SHORT The 2008 financial crisis was a turning point for the globalization process, and it was the first test for the newly formed European Union, which policies helped European countries who were affected the most by the crisis recover. The crisis started in USA, when the housing bubble burst, an event followed by a domino effect that ended with the bankruptcy of a banking powerhouse like Lehmann brothers. The main effect of the crises was the regulation of the financial market, whose hazardous speculative ways brought the largest and richest capitalist country on the brink of collapse and destroyed the savings of countless American households; massive state intervention was the antidote to the crisis in the US, as President Obama injected a great amount of liquidity on the failing banks, preventing them from reaching bankruptcy. Meanwhile in Europe, the EU created an instrument, called the ESM (European Stability Mechanism), an organization which would prevent European states from failing by giving them funds with the condition for these states to implement structural reforms to their economy. Spain was one of the recipients of this measure, while Italy didn’t and implemented policies on its own to combat the crisis, let’s now analyze the two cases to better understand the differences in approach and if they were able to recover from it. ITALY’S SITUATION As I’ve mentioned at the end of the introduction, Italian political landscape is very differentiated, with no party capable of reaching the quota to govern independently, coalitions are essential to have majority in Parliament, this means that any given government in Italy must mediate between the different desires of all different parties that compose the coalition while trying to avoid internecine conflict. In 2008 the rightist coalition formed by PDL (Popolo della libertà, “the people of freedom”), which was also an aggregate of two parties, FI (Forza Italia), led by Silvio Berlusconi and AN (Alleanza Nazionale, “national alliance”) whose leader was Gianfranco Fini, and LN (Lega Nord, “the northern league”) won the election, after the collapse of the previous leftist governing alliance called L’Ulivo (“The olive tree”), which split in 2007 into other leftist parties such as PD (Partito Democratico, “democratic party”). Berlusconi was the prime minister when the crisis unraveled and as a response, he implemented policies aimed at reducing public spending and supporting large banks and firms. ITALY (2016) 0.339 4.74% 2.003 Source: LIS Key poverty and inequality figures 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 39000 40000 41000 42000 43000 44000 45000 46000 47000 48000 49000 Average Wages in Italy and Spain between 2006-2016 in US$ Italy Spain Year Do lla rs Source: OECD Average wages. The first table shows how income is distributed throughout the population, while the graph shows the trend of average wages. We can immediately see how much average wages grew in Spain until 2008/2009, while steadily declining after, but we can also see how much inequality grew in the country, as in 2006 the Gini coefficient was smaller than Italy’s but by 2010 it has surpassed it. Looking at the percentile ratios though, it tells us that Spain income distribution has always been more inequal than Italy’s, even though the latter has always had higher average salaries and its wealth distribution hasn’t really changed that much. One last thing I noticed is how much larger is the distance between the richest and the poorest in 2016, even though the average salaries aren’t much higher, especially in Italy’s case, where the wages in 2016 are lower than in 2006, but the distance between the first and last 10%s is higher. We can see from this data that the 2008 crisis and its aftermath reaffirmed the economic disparity between the rich and the poor. CONCLUSIONS What emerges from this analysis is, in my opinion, the fact that even though both Spain and Italy share similarities, their response and status before and after the crisis are different, that is because Spain’s case was that of a country that knew an incredible period of growth, which wasn’t sustainable in the long term, but was able to recover through systemic restructuring. Italy on the other hand, is the case of a country already in decline, which problems were only exacerbated by the crisis, and still did nothing to fix its systemic problems, which all originated in the 1992 economic crisis, that forced the state to privatize the majority of its larger firms, which is not a problem in itself, but since the Italian industrial system worked with state-owned larger firms and more independent SME, the privatization of the former should’ve led to a change in its industrial system, but it didn’t; and with the rise of Globalization, the availability of cheaper work force to exploit in poorer countries and increasing competitiveness on a world-scale, Italy finds itself in an even harder situation, and the longer it stays the same, the harder will be to climb back to its former sport in the world’s economy. BIBLIOGRAPHY Di Quirico, R. Italy and the Global Economic Crisis. Bulletin of Italian Politics Vol. 2, pp. 3-19, University of Cagliari, 2010 Marti, F., Perez, J.J. Spanish public finances through the financial crisis. Fiscal Studies Vol. 36, No 4, pp. 527-554, Wiley, 2015