Move over Greece, there’s a new Financial Crisis in Town and it goes by the Name of Italy

Posted by PITHOCRATES - November 13th, 2011

Week in Review

Another social democracy in the Eurozone is having a financial crisis.  And it’s even worse than the crisis in Greece.  In fact, it makes Greece’s problems look tame in comparison.  Because it’s Italy this time.  And their economy is huge.  As is their debt.  The Euro may not be able to survive if Italy doesn’t.  It’s so bad Berlusconi will reign.  To save Italy.  And the Eurozone (see Italy at Breaking Point, Merkel Calls for ‘New Europe’ by Reuters posted 11/9/2011 on CNBC).

“It is a step in the right direction,” Swedish Finance Minister Anders Borg said when asked about Berlusconi’s plan to resign.

“There has been no proper understanding of the problems being faced in Italy.” Even with the exit of a man who came to symbolize scandal and empty promises, it will not be easy for Italy to convince markets it can cut its huge debt, liberalize the labor market, attack tax evasion and boost productivity.

Huge debt?  A costly labor market.  Tax evasion?  Poor productivity?  These are the hallmarks of a social democracy.  The welfare state.  Because those generous benefits are costly.

A costly labor force makes the products they make uncompetitive.

The more people consuming taxpayer pay and benefits the fewer people pay taxes.  And the higher the tax rates on those who still pay taxes must be.

The higher the tax rates the unhappier the taxpayer.  And the more they try to evade paying those taxes.

An uncompetitive work force is a nonproductive work force.  And a nonproductive workforce does not grow the economy.  Because expansion capital is paying for a nonproductive workforce.  Not expansion.

It is inevitable.  The collapse of a social democracy.  Because the welfare state consumes more than it produces.  Which is why all the social democracies in the Eurozone have debt crises.  Because spending is always increasing.  And they borrow ever more to pay for that spending.

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