Sigrún Davíðsdóttir's Icelog

The price of politeness

with 7 comments

Rubbish heaps in Naples and ever-increasing eurozone bail-outs are two sides of the same phenomenon within the EU: unresolved underlying problems

‘Why are you taking a photo of the rubbish heap?’ A swarthy man, in his early 40s, double chin and flabby belly in a wife-beater, appeared from nowhere. I had just snapped a photo of a rubbish heap ‘lungo mare’ in downtown Naples. I told him that Naples is my favourite city in the world, I’ve been coming there for twenty years and I find it painful to watch the decline of this glorious city with its spirited inhabitants. ‘But why do you want to take a photo of the rubbish?’ ‘Why shouldn’t I?’ I asked. ‘The city is now defined by this disgrace.’

The rubbish heaps in Naples have been in the news for years. It’s a miracle that there hasn’t been an outbreak of some horrific plague from the ominously smelly mounds in the sweltering summer heat. Every now and then, the military steps in to remove the rubbish but it’s only a temporary relief. After years of empty promises from politicians the underlying problem still hasn’t been solved.

The local ‘malavita’, the Camorra, dominates the city’s garbage sector and to them, rubbish is gold. Camorra-related companies ignore proper waste disposal but dump any amount of highly toxic amalgam of industrial waste, rubbish from hospitals and homes on land bought from farmers by making them a Camorra offer: an offer that can’t be refused. Whole regions of Naples upland are now horrendously polluted causing birth defects in children, cancer rate to escalate, poison to enter the food chain and making animals suffer.

The crime-infested rubbish sector isn’t confined to Naples. When a company in Northern Italy accepts an offer to have its rubbish removed for a pittance it knows full well that proper rubbish management costs much more. By saving money it supports the ‘malavita.’ The Neapolitan journalist Roberto Saviano, who has recounted the ghastly rubbish business in his books and numerous articles, is on the Camorra’s death list and lives in hiding.

Every time I visit Italy it strikes me how rich this country must be since it’s able to afford the waste of resources and human capacity that organised crime causes. Organised crime hinders progress because it stifles efficiency and the learning that promotes development. The Italians themselves bear the responsibility for the Italian situation. But sadly, the disgraceful rubbish heaps in Naples are also part of a European problem.

The rubbish sector is one part of the ‘clean’ side of Mafia Ltd. The ‘malavita’ managed to take hold of the rubbish sector via the private-public partnerships, widespread in Italy. This interaction of private and public bodies is a hugely lucrative operation ground for the Italian ‘malavita,’ be it the Camorra in Naples, the Mafia in Sicily or the ‘Ndrangheta in Calabria. Sadly, EU money has floated through these channels and fed organised crime. Incidentally, private public partnerships have also been a fertile ground for corruption in Greece. On the whole, the EU has been far from vigilant when it comes to corruption in the member countries.

In a recent FT article the Italian ex-EU commissioner Mario Monti blamed the euro debacle partly on the EU being too deferential and too polite to its member states. The large and powerful ones within the EU, have time and again prevented monitoring economic development. Greece’s unsustainable debt was hidden under incorrect official figures – and interestingly, Germany and France opposed giving Eurostat powers to conduct proper investigations. (It’s an interesting angle though it doesn’t quite explain the problem of the eurozone. Data on lending to the eurozone countries has at all times been available from Bank for International Settlements.)

Evidence for the same is evident in many other EU countries. The EU has systematically closed its eyes to corruption in Greece. In 2008 Bertie Ahern resigned as a prime minster due to corruption allegation. Amongst other things he had bought a flat for money he couldn’t account for. In Italy, 84 out of 945 MPs, almost 10%, are under investigation for corruption; 49 out of the 84 are members of prime minister’s Silvio Berlusconi’s party. Minister of agriculture in Berlusconi’s government Saverio Romano has been under investigation for eleven years for alleged Mafia connections, going back more than two decades. France had its Elf affaire. – Only corruption in Bulgaria and Romania seems visible enough for the EU to worry the EU.

Monti is right that had the EU been less polite and taken a more critical approach the problems of the eurozone would not have risen. But the EU reflects the individual countries. In all the European countries, and in the US, debt has been extolled and welcomed, both at private and public level and the purveyor of debt, the banks, have been praised to the skies and the architects of debt, the bankers, have been awarded obscene remuneration.

It’s now abundantly clear that there wasn’t a credit crunch but a debt crunch, caused by reckless over-lending by banks who thought they would forever be able to securitise and sell it off. Yet, the European politicians keep on being polite. Polite to the bankers that armed with excel and inspired by greed and badly structured incentives over-lent to Greece, Ireland, Portugal, Spain, Italy and now clearly to Cyprus as well. Belgium could very well be going the same way – and then it’s no longer a crisis in the periphery but right at the heart of Europe.

It’s now four years since the European Central Bank first provided liquidity ‘to permit an orderly functioning of the money market.’ In a statement 14 August 2007 Jean-Claude Trichet president of the ECB said: ‘We are now seeing money market conditions that have gone progressively back to normal… This attitude… will help to consolidate a smooth return to a normal assessment of risks in liquid markets.’ That was wishful thinking – but this same wishful thinking still prevails: that by bailing out the banks everything will be normal.

That key question is ‘what’s normal?’ It’s clearly not returning back to the over-lending of this last decade. And it’s clearly not following the risk assessment of the last decade. Risk was miscalculated and underpriced.

Trichet’s view in August 2007 still guides the action of the ECB and the European Union, expressed in ever more insane amount of money tied up in bailing out the banks that got it all wrong in the first place. In autumn 2008 many politicians gravely warned against socialising the losses and privatising the profits. Yet, this is exactly what’s going on.

In her comment to Monti’s article the economist Megan Greene pointed out the dangers to this route: ‘A new political class will be brought to power by electorates in the core countries that are fed up with contributing to bail-out programmes.’ There will be ample room for demagogues and unsavoury forces to play on voters’ anger and frustration.

Europe is a rich continent. So rich that it’s now inflating the EFSF with €440bn, though €2 trillion is needed to pre-empt a meltdown in Italy and Spain. The second Greek rescue packet of €160bn, added to the €110bn last year, will only tide Greece over for a limited period.

So far, the ECB and EU politicians have pretended there is only one way of resolving the problem: by letting the tax payers pay. When will the European Union and the ECB drop the politeness and say bluntly to the banks: ‘Your calculations were wrong, you over-lent and as you know, in the financial sector rectifying this kind of mistake is called a write-down. In this case the mistake was huge. Alors, the write-down has to reflect the size of the mistake.’ Any other solution will be like the rubbish heaps in the centre of Naples: they are removed but new heaps grow because the underlying problem hasn’t been resolved.

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Written by Sigrún Davídsdóttir

July 31st, 2011 at 10:14 pm

Posted in Iceland

7 Responses to 'The price of politeness'

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  1. Excellent, I haven’t read a better description of our woes. What is to be done ? I’ll be voting for Eva Joly in the hope, even if remote, of stopping the abusers of the system

    Goupil

    1 Aug 11 at 4:40 pm

  2. That could well have been a photograph from anywhere in my homeland of Goa today, not long ago a glorious idyll, now turned by Indians into a Third World stinking swamp. You have touched upon the proximate causes, but the root causes for this kind of thing would make for unpleasant reading (and writing), and venture into those dark corners considered unsayable in these politically correct times.

  3. […] *Earlier Icelogs on corruption and its effects on the Eurozone crisis can be found here and here. […]

  4. […] The powerful states, i.a. Germany, have time and again intervened to prevent monitoring etc. (Icelog on Monti’s article […]

  5. […] in EU’s unwillingness to acknowledge the problem and cost of corruption (as I have pointed out earlier); unwillingness, which in itself a political vice among the EU countries. The EU countries are in […]

  6. […] in EU’s unwillingness to acknowledge the problem and cost of corruption (as I have pointed out earlier); unwillingness, which in itself a political vice among the EU countries. The EU countries are in […]

  7. Aw, this was an extremely good post. Taking the time and actual effort to
    produce a top notch article… but what can I say… I hesitate a lot and don’t manage
    to get nearly anything done.

    przynieś

    19 May 15 at 7:46 pm

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