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AB 2000 studies

Alain Boublil Blog


The Italian model

Soccer is frequently used as a metaphor to illustrate the major points of the world economy. We remember the comments which have accompanied Germany victories against France during the Word Cups in the Eighties. England defeat, on its territory, at Wembley, against Italy during the last Euro final, has not missed to be accompanied with considerations which have not a lot to do with sport. The Squadra Azzura victory was reflecting the European Union superiority against the United Kingdom which had just left it after the adoption of the Brexit.

This coming back into favor of the Peninsula is all the more remarkable that the country for a long time was considered as the bad pupil of the euro zone with a budget deficit frequently above the 3% inscribed in the Maastricht Treaty, a low growth and especially a public indebtedness of 120% of its GDP, even before the start of the Covid-19 pandemic. The Mario Draghi appointment as chief of government has certainly contributed to this opinion turnaround. His mandate as chairman of the European Central Bank had been unanimously considered as a success. It is him, during the 2012 summer, who put an end to the euro crisis through his “whatever it costs” decision, a concept which has had followers because it has been taken in France by Emmanuel Macron to cope with the sanitary crisis.

The Italian economy had known a very low growth for ten years, which can be partly explained by the accelerated ageing of the population and a low birthrate, which did not impeach it to have a high unemployment rate (10.7 % against 7.5% in France). It has, in 2021 a strong recovery after the deep 2020 recession. Its growth rate would reach in 2021 5%, above the German one (3.6%) but below France with 6%, according to the last INSEE forecasts. But the essential point is not there. The country delivers exceptional results regarding foreign exchanges. Its trade surplus reached 5.64 billion euro last May. In 2020, the whole surplus has been 63.5 billion euro, a 12% increase against 2019. But the country has neither oil resources and nor nuclear power plants able to ensure its electricity production without having recourse to imported fossil fuels to the opposite of France.

Italy current accounts surplus has reached 3.8% of its GDP when France, despite tourism receipts and the enterprises revenues of foreign investments, has a 1.6% deficit. This positive balance is by large inferior to German one (7.5% of its GDP in 2020) but it significantly contributes to the euro zone surplus that our neighbor from the other side of the Rhine cannot assure alone and so to the stability to the unique currency. The consequences of the sanitary crisis on the public indebtedness ratio have been considerable and have sent this one above 150% of the GDP under the cumulated impact of the rise of the public deficits financed through debt and the fall of the GDP. The current rebound should mechanically make this ratio dropping but it has not affected the trust in the euro zone and the 10 years interest rate of the Italian bonds remained by large under 1%.

How to explain the foreign achievements of the Italian enterprises and could France inspire itself from them when, until now, the benchmark was Germany? The measures adopted during the last ten years have not brought any result regarding enterprises competitiveness as the poor results of France foreign exchanges with a deficit above 60 billion euro in 2020 and a new increase since the beginning of the year. The reduction of the social and fiscal charges had to be partly compensated by an increase of the taxes on household, which has weighted on growth, and by an increased public indebtedness but have not contributed to a rebound of foreign exchanges and even less to a re-localization of activities.

The Italian enterprises structure gives a first element of answer. They have a middle size and are by large owned by families. Their culture is oriented toward client satisfaction and not to a return to offer to shareholders or to the prestige and the power will of their executives, which are very rarely coming from high public administration. That satisfaction is first obtained thanks to the custom proximity. We see, for instance, in France hundreds of shops specialized in characteristics Italian food products (cheese, vegetables, pork products, etc…). How many shops, to take this simple example, exist specialized in the Basque country products which are on the same market, in France and in the world? Hardly a few dozens.

France is proud about its large groups and has the first position in Europe regarding their number. But how did they become so big? Rarely because they know how to get clients thanks to the quality of their products or because they answer market expectations but through acquisitions, most of the time foreign ones and financed by debt. That has not always been a success and that even sometimes caused their disappearance or their fall under foreign control, like Lafarge, Alcatel or Pechiney. But that has very rarely created an increase of the activity in France and even less new exports. The successive governments, under the influence of the executives of these large groups have made the analysis that it was the labor costs which were at the origin of that insufficient competitiveness in wrongly taking as an example the German case because employees of the car industry, for instance, were much more well paid than in France, and that sector is the biggest contribution to the deficit between the two countries.

These governments could then have questioned themselves about the foreign successes of the Italian enterprises which are not quite different from the German ones. They would have taken the conclusion that the origin of this French economy weakness, which in fact is e recent one because until 2004, excluding energy, the France trade balance had a large surplus, were not on the economic ground but had structural causes as the executives hiring modes, the attitude of the banks which were aware of encouraging mergers and acquisitions or the insufficient attention regarding clients expectations. When you produce ugly cars, you must not be surprised if you cannot sale them. When the remuneration of the executives is linked to the size of the company, you cannot be surprised if these ones are obsessed by external growth, even if it affects the enterprise long term financial strength.

France was used to the German complex. Even if the growth of our neighbor was not so much higher than our one, the successes on international markets of its enterprises, whatever was their size, were considered as ineluctable. So we were looking for taking lessons from them but anyway without reaching these successes. The current political rapprochement with Italy which would lead to the signature of the Quirinal Treaty should now incite us to better understand the reasons of the successes of the Italian enterprises and to learn all the lessons.


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