Jobs appear – but, no filling pieces to be found.

The growing public debt is not the only thing that Italy needs to be afraid of. Italy’s Ministry of Work and Chamber of Commerce reported that for 2015, there were 76,000 jobs in the industrial and service sectors that could not be filled. This shocks many people when one considers that Italy has an 11.7 percent unemployment rate and a 37.9 percent youth unemployment rate (The Local – Italy, 1). It is clear that the technology and engineering markets in Italy are struggling to find qualified talent.

Experts list different reasons for this economic conundrum. Travel patterns show that thousands of Italian university graduates leave their homeland for foreign work opportunities. Italian statistics agency Istat reported that 7 percent of all PhD holders from 2004 to 2006 live outside Italy, which doubled to 14 percent for the doctorates from 2008 to 2010 (The Local – Italy, 1). Also, Italy may lack a high number of college graduates who study  software development and engineering. The Ministry of Work and Chamber of Commerce reported that 41.8 percent of job openings for software developers could not be filled, as well as 30 percent for engineering positions (The Local – Italy, 1). Also, Italian Companies have made it clear that many young Italians looking for jobs lack of work experience. Universities can help address this issue by creating more work placement opportunities for students.

Bibliography

“Thousands of Tech Jobs Vacant as Italy Can’t Find Talent”. The Local (Italy). 6 April 2016. Web

Advertisements

Panama Papers – Italy’s Involvement Reviewed

The Panama Papers have seemed to mention people from practically every country. Italy now finds itself with groups and individuals that have been named in this set of 11.5 million documents leaked from the law firm Mossack Fonseca (The Local – Italy, 1). Two banks, Unicredit and UBI Banca, were named though both said publicly they did nothing wrong. Around 800 Italians can be found in the documents that include people such as businessman Giuseppe Donaldo Nicosia, former Ferrari president Luca Cordero di Montezemolo, and racecar driver Jarno Trulli.

With this evidence in hand, Italian tax authorities can now pursue those who have broken the law. Offshore accounts are not illegal, however, these accounts allow for various methods of tax evasion. Italy will not be the first country to start this type of investigation. Austria, Australia, France, Sweden, New Zealand and the Netherlands are in the processes of their criminal investigations (The Local – Italy, 1).

The breadth of the Panama Papers itself is quite staggering. Over 140 politicians and government officials worldwide are found in the documents. Out of this group, twelve are current and/or former world leaders. To be specific this includes: the presidents of Ukraine and Pakistan, Iceland’s prime ministers, and the king of Saudi Arabia (The Local – Italy, 1). Team Mint Condition will keep our readers updated on any news regarding the Panama Papers in Italy.

Bibliography

“Panama Papers: Italy Readies to Probe Country’s Rich.” The Local . 5 April 2016. Web.

Rescue Mission: Banks in Deep Water

As Italy seeks to recover from their recession, Prime Minister Matteo Renzi has focused his attention on how to repair the damaged banking system. With over 360 billion euros in bad loans, the Italian economy is looking for some way to re-energize the markets and create an environment that supports investment and capital projects. The Italian government made an agreement with the European Commission earlier this year, which allowed banks to bundle bad loans into securities for sale. While this allowed for some lessening of the pressure on the banking system, it was nowhere near a total solution. According to Bob Parker, a senior advisor at Credit Suisse, “The Italian banking system has been under-capitalized… and the economic impact has been negative because banks haven’t been strong enough to provide credit.”

The current solution in development: a backstop style fund named Atlante. The 5 billion euro fund will be backed by banks, insurers, and investors. To avoid violating European Union rules against providing state aid, Atlante will be privately managed by Quaestio Capital Management. The idea is that the fund will act as a buyer of last resort for banks that struggle to raise equity capital or can’t sell the riskiest of their bad debt. It is a good idea in theory. A recently released report, however, has dropped some details on Atlante that shows between 3 to 6 billion euros in existing commitments. So part of the problem, and where most of the criticisms are arising from, is that the fund is simply too small to speak to the issues it was designed to resolve. It’s akin to placing a small bandage on a gaping wound.

Since the announcement of the Atlante fund and the subsequent report on its scope and existing obligations, Italian markets have taken a hit. Intesa Sanpaolo dipped 4.1 percent, UniCredit SpA dipped 5.2 percent, and Italian Lenders have struggled on the Bloomberg Europe Banks and Financial Services Index. The question is, what will the country do in response to these recent losses given the investment in the new funds?

What further complicates matters is the question of whether or not Brexit will come to pass. If the UK leaves the European Union, the continent may yet see even greater economic woes. Last month, Banco Poplare SC and Banca Popolare di Milano Scarl merged through an all stock deal to form the third largest bank in Italy, the biggest transaction since 2007. This could be a sign of good fortune on the horizon. As Bob Parker had previously stated the banking system had not been strong enough. But with a larger infrastructure and more capital projects, Italy could be on the path to recovery. But what most leaders in the industry know is that the banking system does require a complete reboot, which will take a significant amount of time and a significant amount of investment. It is certainly not something that will happen in the country overnight.

Bibliography

Italy’s New Bank Rescue Fund Meets With Investor Skepticism

EU “Police”: No Monopolies On Our Watch

In a country that has long been in financial turmoil in the eyes of the EU, two companies in the telecommunications industry looked to create a merger that would unseat Italy’s current leader in mobile provisions.  CK Hutchison Holdings Ltd. and VimpelCom Ltd. now face an in-depth European Union probe into their plans to combine their Italian telecommunications units after the EU’s antitrust watchdog raised concerns the deal could lead to higher prices and less choice for mobile users.

Italy is not the only market in which Hutchison has received some static regarding merging of their holdings – analysis of the merger comes on top of the regulator’s ongoing review of Hutchison’s plans to combine its Three unit in the U.K. with Telefonica SA’s O2.  We are witnessing a very omnipresent EU, but concern with issues of anti-trust deflects attention from the greater issue of the struggles of the Euro.  There may be some concern that the EU is focusing on this issue among the many facing the governing body; however, cooperation has been paramount throughout the first stages of the process.

The focus of the analysis is “the extent to which the parties are close competitors, the market incentives that would be faced by the joint venture and the potential response of its competitors,” as opposed to the effect on the greater Italian economy.  They have set the tentative date of August 10 to make a decision, so until that time keep an eye on who you are getting phone service through!

Bibliography

Hutchison 3G Italy Deal Faces In-Depth Review by EU Watchdog

 

Wine in School?

In Mid-March, Italian Senator and member of the Puglia community, Dario Stefano, suggested to Parliament that Wine History and Civilization be a mandatory subject of education in Italian public schools.  Enlisting the help of wine historians, enologists, and other experts, Stefano held a press conference to unravel his plan for students to have 1 hour a week of wine education.

Citing a disconnect with a history that has been “linked to grape growing and wine,” Stefano preached that the children of Italy need to know what built their country into the largest producer of wine in the world today.  Wine is seen as an ambassador to the world for Italian people and many who travel to the country do so to partake in the rich history of wine growing and production.

He later spoke about young people and their appetite for consumption of alcohol with a lack of appreciation for its place in the Italian home for years.

“Young people around 15 years in age consume alcohol at least once a week but they do so outside the home. And their logic is that of having a good time. We need to bring wine back into our homes, into our schools, and into the core of Mediterranean culture because wine is not for getting drunk: It is the origin of our identity and our belonging. We need to bring wine back to being a beverage of the people.”

We have yet to see if his outcry was met with positivity in the Parliament, but it is a valiant cause and something that could shift something from cultural consumption to academic subject matter.

Bibliography

Italian senator proposes mandatory instruction of wine culture in public schools

Italian Tech Gets Boost from US Companies

In January, the American tech behemoth Cisco Systems announced a series of strategic commitments in Italy that will total $100 million over the next three years.  Cisco signed an agreement with the Ministry of Education, University and Research (MIUR) to teach teachers and students through the Cisco Networking Academy.

Further, Cisco has formed a investment partnership with Invitalia Ventures,  a national venture capital firm in Italy.  Together with Invitalia, Cisco has the opportunity to bolster the Italian startup scene as well as get involved with the best startups in the country.

While the news has been welcomed by the many, few are connecting this with a tax reduction that Apple has received by the Italian government for their tax bill. One of Italy’s main newspaper “Il Fatto Quotidiano” reported on December the 30th that Italian Government agreed to get from Apple €318 million instead of the €800 million that the American corporation actually owed. In this negotiation, Apple might have included the opening of the new developer center in Naples.

Unlike Apple, Cisco has not received any reported tax breaks to enter into the Italian startup ecosystem.  They have had to forage their own partnerships, like that with Invitalia Ventures, and are now seen as partners in the growth of the Italian economy.  It will be interesting to see the number of tech interviews we can secure in the country as a representation of this new growth.

Bibliography

The Italian Tech Sector Is Getting A Boost From Big U.S. Partners

 

 

Public Spending Problems

Bulgaria, Croatia, France, Portugal, and Italy are now facing the anger of the European Union. Each country was said to have violated the European Union’s rules for public spending. This announcement was made by the European Commission, which is the executive branch of the European Union. The European Commission will now keep a closer eye on each of those countries’ spending habits (The Local – Italy, 1).

Italy’s violations stem from two main areas. First, the Italian government has a very high level of debt. Second, high long-term unemployment figures will stymie future economic growth. Similar to the countries listed previously, Italy could face punitive action from and penalties levied out by the European Commission. Valdis Dombrovskis, the Vice-President of the European Commission, recently stated that countries which failed to improve their public spending practices “can be put in the corrective arm at any moment” (The Local – Italy, 1).

According to the European Commission’s website, the corrective arm is used to make members of the European Union conform to the Stability and Growth Pact. This pact establishes rules that members must follow to ensure logical and coordinated public financial policies in the European Union (European Commission, 1). Furthermore, countries with budget deficits must follow the Excessive Deficit Procedure. This requires member nations to limit their public deficits to “3% of deficit to GDP” and total public debt to “60% of debt to GDP” (European Commission, 1). It remains to be seen if Italy can follow through on the European Commission’s potential punishments. Team Mint Condition will keep our readers informed on any more announcements from the European Commission regarding Italy’s violation of the European Union’s rules for public spending.

Bibliography

“EU slams Italy for spending ‘imbalances’.” The Local (Italy). 08 March

2016. Web.

“The Corrective Arm.” European Commission. Web.

Tax Evasion -Italy’s Fight with Itself

The Italian government has stepped up its efforts to punish individuals who are defrauding the government over taxes. Previously, in 2014, the national tax agency recovered from €14.2 billion from those involved in tax evasion. For 2015, the agency recovered a new record of €14.9 billion in unpaid taxes. Pier Carlo Padoan, Italy’s Minister of Economy and Finances, estimates that the money recovered has quadrupled in size since the start of this plan nine years ago (The Local – Italy, 1). Despite these recent successes, the amount of recovered taxes still pales in comparison Italy’s widespread issue of tax evasion.

As of last year, only three-hundred and fifteen thousand Italians were offered the chance to fix errors in their annual tax returns. Only half of this group chose to make changes with the incentive of only being liable for reduced financial penalties. This led to a recovery of €250 million, even though the government approximated that the country’s total losses from tax evasion reached €90 billion annually. To note, this value was lower than the organization Confindustria’s estimate of €122 billion annually (The Local – Italy, 1). Experts believe that this amount is equal to 7.5 percent of Italy’s GDP.

Regardless of the estimated value, close to half of this amount comes from non-payments of value-added taxes. Also, a third of the total amount comes from non-payments of payroll taxes (The Local – Italy, 1). This bleak reality will not help Italy’s national debt problems any time soon. Recently released figures show that the national debt has increased to 132.6% of annual output at the end of 2015. Team Mint Condition will keep our readers posted on any updates regarding tax recovery and national debt levels in Italy.

Bibliography

Italy announces record haul from tax fraud crackdown.The Local (Italy). 01 March

2016.

The Italian Banking Crisis- Is Monte dei Paschi too big to fail?

Italy is finding itself right in the middle of Europe’s banking crisis. Every bank has bad

loans from time to time. In Italy, the number of bad loans appears to have leveled off.

So why then are shares of Italian banks continuing to free fall? The reason is in part

because the bad loans held by the weakest Italian banks may need to be paid for by other

(stronger) Italian banks.

Last November, four small troubled Italian banks were merged and recapitalized,

turning four failing banks into one larger healthy bank. The bad loans were booked into

the new bank at just 20% of their face value, allowing the new bank to profit on the bad

loans. This fix came at no cost to taxpayers. Instead of using taxpayer funds, healthy

banks were forced to make contributions over the years into a “resolution fund.” This

fund was used to bail out the failing banks.

Historically, this system (fair or not) has been working in Italy. The trouble is

that the number of banks needing bailouts is exceeding the amount of money the healthy

banks can offer before they find themselves in financial trouble. This scenario is

repeating itself all over Europe.

The poster child for this concern is the world’s oldest bank, Italy’s Monte dei

Paschi di Siena (which happens to also be Italy’s third largest bank by asset size).

Although still considered “strong,” Monti dei Paschi has troubled loans of its own. Due

to the above-average supply of bad loans being sold in the marketplace, the prices offered

for these loans has fallen to around 30% of face value. Selling off all of those bad loans

would force Monti dei Paschi to reduce their face value from €46.9 Billion to €12.5

Billion. A reduction to their assets of this size is greater than the bank’s common tier one

equity (meaning that selling all these troubled loans today at 30% of face value would

extinguish the bank’s healthy equity position).

To make matters worse, ordinary Italian savers tend to hold lots of bank bonds.

Many of these individuals lost money when banks failed in the past. The outcry from

everyday savers caused the Italian government in December 2015 to create a new €100

Billion compensation fund, to prevent future bank failures by forcing other banks to

contribute.

Monti dei Paschi is a great example of the American phrase Too Big to Fail. A

failure of the world’s oldest bank would cause ordinary investors to lose significant

savings in the form of bank bonds. At the same time, continuing to have healthier banks

fund failing banks is a solution that cannot last forever.

Many experts believe that Monti dei Paschi needs a merger. Two banks that have

recently been mentioned are UniCredit and UBI Banca. Reform and consolidation of

Italian banks is coming slowly, but Monti dei Paschi is the most pressing problem.

Failing to find a solution will cost all Italian banks dearly.

(WSJ, 1).

Bibliography

Italian Banks are all in it Together – and That’s the Problem.WSJ. 15 Febr 2016.

Investors Flee Italian Bank Stocks

2016 has not been the most promising year thus far for the world economy. Since China devalued its currency and continues to still see very little light for a turn around, almost all global economies have been feeling the repercussions, especially Italy. In December, Italy received a very underwhelming and disappointing stimulus program from the European Central Banks, which really catapulted the situation to where it is today. Italy has “lost over a quarter of its value” just in the first six weeks of the year. To explain how significant this is and to compare to other economies – S&P has lost 9% of its value, while Japan’s Nikkei 225 has only lost 15%. Banks are not the only economic problem in the country, but corporations are feeling it too, such as Telecom and Fiat. What makes this fall such a catastrophe is the fact that at the beginning of the year (and really since 2014), Italy was projected to be one of the top growing economies in the world largely due to “ultralow valuations, long-awaited pickup in domestic growth, and hopes that the new Prime Minister would bring structural reform.” Merrill Lynch and J.P. Morgan, just to name a few, projected that Italy’s banks would have an outstanding growth period this year, even up until 3 weeks ago it was seen as one of the most favorable equity markets.

But an economy that started at the top is now seen as one of the top worst performing developed markets, and everyone is asking, “is this a buying opportunity or a red flag to pull out?” Many investors have already decoded it’s not worth taking the risk and have started fleeing the Italian economy, which is only hurting it more. This economic instability is important for us all to look at because of the effects it will have on business. The article already mentions that the corporations are feeling the complexities, and businesses are close behind in seeing the domino effect hit them next. What does this mean for export of wine? Does this shape the way consumers will be marketed to by corporations when financially they are struggling? For most people, starting a business here does not seem like the most sound idea. Why would you put your new company, everything you have, into a country where there is no potential for growth and greater risk for loss. With Apple joining the Italian Business Family this year, many other corporations and especially start-ups were thinking about taking the leap to Italy – with the mentality that if it’s good enough for Apple, it could be good enough for us. However, will this economic downturn turn businesses away? Even more seriously, will current Italian businesses start looking elsewhere for a new home? We will keep watching the Italian banks, but more importantly, it’ll be vital for all of us to keep an eye on the global economy through its ebbs and flows.

 

Bibliography

Rush to the Renzit