EUCOM Economic Analysis - Part I

[Firn]

@Ulenspiegel and Fuchs: The 'quality' of the foreign (direct) investment and it's value for the Italian economy depends of course a lot on the specific cases. The FT has a short article about fire sale business prices in Italy.

German companies are seizing opportunities to expand as the recession drives down the cost of deals in struggling southern Europe, with
only US-based businesses closing more deals to acquire Italian companies in 2013, according to Dealogic.

...

In one recent case, Mr Mack says, a company in the dental sector was relocated entirely – including its production facilities which were dismantled in Tuscany and rebuilt in Bavaria.

German businesses, Mr Mack adds, are not interested in Italy primarily because of the Italian market. “They are interested in the products, interested in marketing the products somewhere else.”

That is of course not the outcome you want to see from an Italian point of view and it is different in other cases. I guess that in this case a competitor was able to get those assets at a good price compared to it's value. A big aspect of the lack of financial strenght in Italian companies is the credit crunch, partly deepened by the incentives to buy the states debt.

The key difference between Italy and Germany in terms of cheap labour is not so much the immigration but the outsourcing of elements of the value chain across the borders. While Italy has lately increasingly done so in countries like Romenia (language!) it has been much easier up north to integrate labour-intensive steps on foreign soil within the EU at low labour costs. This obviously raises productivity and profits at home, as this article and it's links show.

Tim Taylor has picked up that argument and the one about flexible wages in his post. I would throw in the luck which Germany had that with it's industrial makeup with the key 'automotive, chemical or machine building industries', mentioned by Fuchs, it got a huge demand boost from abroad. Not close to the Australian level, but still a big boost indeed, just look at annual reports from German companies in question.

I will leave it there for now.