Italy's Economy Vindicates Skeptics of Big Government

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PIAZZA ARMERINA, SICILY-The view from America is that Europe is collapsing economically. Imagine the view from one of the most beautiful and impoverished regions of Italy, a country that embodies the European economic crisis. Welcome to Piazza Armerina, a city of 20,000 in the middle of Sicily.

Piazza has small winding streets with picturesque balconies, a central plaza with delicious ice cream, plentiful coffee shops, and a magnificent cathedral. Perched on a hill, it features views of rural Sicily with sheep, olive groves, orange and lemon orchards, and vineyards.

Despite Piazza's charm, the effects of the economic crisis are evident. Too many unemployed men walk the streets and congregate in plazas. Unemployed women are less visible, since they perform unpaid work at home. Many people face shrinking government pensions, pensions they thought would be there for them when they retired.

On Saturday the Italian Parliament reelected Giorgio Napolitano, its 87-year old president, the first time that Parliament has asked a president to stay for a second seven-year term. No other candidate had sufficient support.

The unemployment rate in Sicily is generally about six percentage points above Italy's average, now 12 percent. Regional data aren't available for 2013, but that adds up to an unemployment rate in the range of 18 percent. In the province of Enna, where Piazza is located, I estimate that the unemployment rate is about 19 percent now, a percentage point higher than Sicily's.

Italy is made up of a multitude of parties, small and large. In the elections in February 2013, no party received a majority, and none managed to join to form a coalition government. A comedian, Beppe Grillo, with his new Five Star party, won 25 percent of the votes on a platform of returning to the lira and throwing out the establishment.

The newly re-elected President Napolitano has the power to dissolve Parliament and call elections. No one knows if, or when, he will do this.

"The reconfirmation of Napolitano is a sign of failure, since his term was over and the three major parties in play were unable to agree to a new president," Foundation for Defense of Democracies scholar Michael Ledeen, an expert on Italy, told me.

To see how Italy doesn't work, look no further than the ugly windmills and fields of solar panels installed with European Union funding that mar the otherwise beautiful Sicilian countryside.

Italian electricity companies have to buy all wind power generated at $392 per megawatt hour. They must buy solar power at $520 per megawatt hour. In comparison, electricity generated by natural gas costs $95 per megawatt hour.

How ironic that the European Central Bank is trying to get Italy to reduce its deficit, yet the EU insists that Italy buy alternative electricity at four or five times the cost of natural gas. Austerity obviously doesn't apply to electricity production.

Many Italians consider windmills and solar panels ugly, yet don't seem to be aware of how alternative energy is raising their electricity costs. What really disturbs them is their politicians, how little they do and how much they are paid.

Alessandro and Gabriele Scarlatella, who sell their father's world-famous ceramics in the small town of Caltagirone and all over Italy, told me that the politicians are taking citizens' money without providing anything in return. Services are dwindling, discouraging tourism.

Italy's politicians have the highest salaries in Europe, $250,000 a year, plus $20,000 annually in travel expenses. When they retire, their pensions range from $47,000 to $200,000 a year.

This compares to annual salaries of $174,000 for American senators and representatives, $199,000 for Germans, $103,000 for British, and $73,000 for Spanish.

And Italians have many politicians: 630 deputies, 315 senators, 58 regional representatives, and 4 senators for life, all of whom have massive salaries and pensions.

Elio Savoca, who owns the Gigliotto winery in Piazza, had the same answer. "Send the politicians home," he told me. "They're old, out of touch, and have been there for 30 years."

The inherent problem, Savoca said, is that taxes are too high. He pays 60 percent of his profits in taxes. Plus, banks have no funds, and have stopped lending to companies.

Savoca is keeping his business afloat by exporting to Switzerland, Poland, and Germany, where economic growth is stronger. He'd like to export to America, but due to regulations, "it's easier exporting guns than wine to America," he said.

Another entrepreneur, Katia Caruso, renovated the magnificent Palazzo Marchesi di Roccabianca, a 17th century historical monument, in 2003, and turned it into a hotel. The rooms, built for nobility, now accommodate tourists from Italy and throughout the world.

The system of government is broken, Caruso told me, and the politicians corrupt.

One major problem is that anyone can start a political party by getting between 1,500 and 4,000 signatures on a petition. This entitles the founder of the party to government funding. The funds ostensibly should be used for the party, but in practice are distributed to friends. This is not only a waste of government funds, but adds to the difficulty of forming a government.

Even the young told me that Italy "needs to change its government." Guiseppe Ridolfo and Gaetano Connizzo, ages 16 and 17 respectively, are getting qualifications in electronics, but plan to leave Sicily and move to Milan to find jobs.

Sicily, like the rest of Italy, should have everything going for it. It's the ultimate tourist destination, with landscapes, learning, and leisure. It's also a working example of the failure of government institutions. Italy labors under inefficient governments and increasingly stringent EU regulations.

Fortunately younger leaders, such as Florence's Mayor Matteo Renzi (age 38) and Verona's Mayor Flavio Tossi (age 43), are running for leadership within their parties. They have high approval ratings in their cities and are winning increasing national support. If Renzi, Tossi, and others break through, there's reason to hope that Italy can outgrow its economic crisis.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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