01 Dec La Dolce Vita (The Sweet Life)

La Dolce Vita which translates literally to mean either “The Sweet Life” or “The Good Life” was originally an Italian film directed and co-written by Federico Fellini, who is considered one of the most influential film makers of the 20th Century. The film is about a search for love & happiness which is a bit like having monies invested as we all seek to receive a suitable return on our capital invested. La Dolce Vita remains one of the most critically acclaimed movies of last century.

At the moment investment markets have having their own La Dolce Vita moment with the “Trump effect”. The US is looking to increase spending on infrastructure and other jobs orientated programs (thus boosting economic growth) & cutting both corporate taxes & personal income taxes for the top end. There has also been talk of a form of tax amnesty for corporates who hold oodles of cash overseas (Google, Apple, etc.) to repatriate these monies & bring them back to the good ol’ USA.

The US was already experiencing an acceleration in it’s economic growth prior to the election & this has been reinforced via a good barometer in retail sales, with the Xmas holiday shopping season kicking off on Thanksgiving/Black Friday. Already sales are up, particularly online, so the old joke of never getting between an American holding a credit card and a cash register still applies.

Next week attention will turn to Italy though which is the 3rd largest country in the Eurozone and their present Prime Minister Matteo Renzi (From the Centre Left Faction) who is holding a referendum who he hopes will simplify decision making through reducing the size & role of Italy’s effective upper house (their equivalent of our senate) & to transfer greater control back to Rome.

The polls/media are currently saying the No vote will win – but who really knows after Brexit & Trump this year. What I do know is that vested interest will always come into play & populist politics is being pushed at every angle, so a No vote wouldn’t surprise. Italian politics is really Monty Pythonesque (but I could say that about our system too !!) – they have 2 houses like we do, but both houses can introduce and reject bills. The Upper House has 315 members – to vote for these members you need to be > Age 25. The lower house has 630 members and you only need to be > Age 18 to vote there. They also have parties and factions there known as the “Northern League”, the “Five Star Movement” & the “People Of Freedom” (Can anyone say the Peoples Front Of Judea !!). You also only have to go back to the depths of the European debt crisis back in 2011, when in trying to reform the Italian Pension system punches were thrown by both sides (yes literally) in their parliament – just view the video below & the real reason behind the biffo

A Yes vote means

• streamlining processes, reducing the size & effective power of the Senate. Current elected Senators will be replaced by 100 permanent/appointed (rather than the present voted) 315 members – you can imagine the jockeying for positions going on now.
• The Senate’s consent will only become necessary when enacting laws on specific matters. Otherwise, the Senate’s approval is optional and can be over-ruled by a second vote by the Lower House (you wonder why they need a senate at all in this instance…???).
• Critics have suggested this is putting too much power in the Lower House and excessively reducing the checks and balances of parliament. An argument which you would think is logical in Italy due to their past political history – can anyone say Mussolini ?.

In the same way that David Cameron (Who was from the political Right) fell on his sword after Brexit, Renzi has said that a No vote will see him resign. Renzi’s opponents both within his own party and from the opposition have been using this to try and push him out already – Renzi has since backtracked on this claim to some degree unsurprisingly. If he goes on a No vote perhaps Berlursconi might come back again ?

At the heart of this current stoush though is the Italian banking system. Previously Spain, Ireland, Portugal, etc. have received bailouts but the Italian Banks are still carrying too much in the way of bad debts. Renzi has a 5 billion Euro plan with which to re-capitalise Italian banks. ECB rules have previously been amended to stop further bailouts without pain being inflicted on Bank depositers or bond/equity holders, but you can rest assure that there will be some deal cut at some stage. Italian banks will need some form of re-capitalisation as bad debts in some parts are running as high as 20% (compared to Australian Banks at a maximum of 1%)

As we know here having good sound Banks is an integral part to providing a good backdrop to economic growth. We here in South Australian went through this with our State Bank when the Bank was split into a “good” bank which got on with business & a “bad” bank which tried to get back as much monies as it could.

Italy also has had anemic economic growth since the turn of the century & youth unemployment is > 35%. On the plus side Corporate debt levels are relatively low & household balance sheets are in a good position, however they are exposed to Bank debt (hence the political need to recapitalize Banks without bond/equity/deposit holders taking a “haircut”)

Euro skeptics will say that a No vote will be the end of the European Monetary Union, but I just can’t see that. Support for the Euro remains strong with France at 67% (Socialist Government), Holland 75% & even Italy 55%. The same way the Greeks were forced to toe the line, the Italians would have no real financial leverage, as they need the Euro more than the Euro needs them in some ways. Just as we see here in SA that the population (or the government) is for renewable energy, until you can’t get any power, then we will take power from any source at any price, so will ordinary Europeans think the same way about the Euro.

“Super Mario” Draghi (Head of the European Central Bank) has also previously said that he would do anything to keep the European Monetary Union together. Getting European nations to agree together is sometime like herding a bunch of cats, but Super Mario has shown that he can stand up to the Germans or the elites in Brussels, whilst having the negotiating skills to coerce other countries. Think of it like here when the Commonwealth holds its COAG meetings with State Premiers, with all the various states saying no way will they compromise, before a deal is done somewhere down the track – or as the other old joke goes never get between a Premier & bag of $$$.

For those of you who have been lucky enough to visit Italy you will know of the beautiful countryside, exquisite food & wine & the generally laid back nature of its people. Italy like many countries in the world & especially in Europe however needs to reform it’s ways (can anyone say French industrial laws) so it’s future generations can continue to enjoy the sweet life

This vote will not be the end, but merely part of the journey that Europeans must undertake. I’d like to think that Italy will end up like Fellini’s movie – La Dolce Vita won the Palme d’Or (Golden Palm) at the 1960 Cannes Film Festival

Or in the words of Al Green’s song Love & Happiness: –

Love & Happiness,
Something that can make you do wrong, make you do right