COLUMN-Venice's renaissance shows a path for European revival
By Anatole Kaletsky
Jan 23 (Reuters) - "I have seen the future and it works," said Lincoln Steffens, a left-wing American journalist, on returning from the Soviet Union in 1919. After a weekend in Venice at a seminar organized by the Italian ambassador to Britain, I found myself struck by the same thought, which is not exactly the reflection that the world's most perfectly preserved medieval city is supposed to inspire. Venice is a clichéd metaphor for "Old Europe" - a sclerotic old continent fixated on its past and now retiring to become a museum society, destined gradually to sink beneath the sea. But should we perhaps be inspired, not depressed, by the thought of Venice, the ultimate "museum city," as a microcosm of Italy and even of Europe as a whole? After all, Venice is still standing, not sinking into the sea, and after 500 years of supposed decline it is still stunningly beautiful. Maybe Italy and Europe, instead of sinking, will also prove their resilience and make a comeback?
An event this week that pointed to this conclusion was the deal on electoral reform announced by Italy's two biggest political parties: Matteo Renzi's governing socialists and the opposition led by Silvio Berlusconi. This pact, which should create stronger majority governments, was significant - not just for Italy but for all of Europe, because quite modest policy reforms would be sufficient to revive the Italian economy and transform economic policy debate across Europe. For example, a broad consensus now exists for moderate labor reforms, for big reductions in the employment tax burden, for dismantling overlapping layers of government bureaucracy and for shifting welfare spending from over-generous pensions to education, training and active measures to help the unemployed. But none of these "supply-side" reforms would achieve useful results unless supported by a stimulus from monetary and fiscal policy.
The European Central Bank understands this, and even the German government's resistance to economic stimulus is eroding. So if a stable and democratically credible Italian government showed willingness to seriously implement supply side programs, the ECB would surely respond with strong measures to expand credit, especially small business loans. And given the importance of small businesses to Italy, an aggressive program of officially-backed SME lending could have a similar electrifying effect on the Italian economy as it did last year in Britain, with government-guaranteed mortgage loans. In turn, a rebound of economic activity in Italy would have big effects on business and financial confidence in Spain, Greece, Portugal and France, as well as quite possibly transforming the German economic policy debate.
In short, a modest change in Italy's electoral arithmetic could produce enormous benefits, perhaps even saving Europe from what looks like inevitable stagnation and terminal decline. Why this disproportion between modest political changes and big economic effects? Because European stagnation and decline are not inevitable at all. Europe's businesses are globally competitive, as evidenced by trade surpluses bigger than Japan's or China's. Europe has caught up with the U.S. in technology, and its infrastructure is generally better. But what Europe needs to restore decent growth and employment is pragmatic political decisions, above all to coordinate macroeconomic stimulus with structural reforms.
At present, such coordination seems politically impossible because Germany vetoes any possibility of stimulus. But when desirable objectives are defined properly and articulated clearly to voters, political prejudices can eventually be overcome - a point which brings me back to Venice.
Two facts about Venice are almost as familiar as pictures of the Grand Canal. Firstly, that Venice is a pure "museum city," with no economic purpose or prospects except as a tourist playground. Secondly, that Venice is sinking and will eventually be engulfed by rising seas. Although I have been dozens of times to Venice, I only learned last week that both these universal beliefs are wrong.
The main islands of Venice still have a permanent population of 56,000, which is very similar to the 60,000 population of the historic centre of Florence. This population will probably rise in the next few years because Venice is resuming its historic role as the administrative center of one of Italy's most prosperous regions and because the university, which currently has 28,000 students, will house more of them on the island itself. The Venetian authorities are also belatedly recognizing that their city could provide ideal conditions for IT and creative industries, with many large and beautiful buildings suitable for office conversion, an excellent quality of life without traffic or congestion and, most intriguingly, unlimited high-capacity broadband, since cables can simply be run through the water instead of requiring expensive excavations underground -- a perfect illustration of why there need be no contradiction between a "museum city" and an innovation hub. On the contrary, culture and technology are natural partners, as evidenced in London, Munich, Paris and Stockholm, not to mention New York.
As for rising sea levels, this seemingly inexorable threat has been completely conquered. By 2016, Venice will be protected by 78 enormous hollow steel gates, submerged on the seabed and capable of rising rapidly on ingenious giant hinges, powered by the simple principle of flotation. When completed, these gates will seal off the entire Venetian lagoon against storm surges of up to three meters, higher than the most pessimistic projections allowing for 100 years of global warming. Moreover, this engineering marvel will stabilize building foundations and will eliminate the regular small floods known as "aqua alta," which have increased in frequency and rendered many Venetian buildings uninhabitable or ruinously expensive to maintain. Most amazingly of all, this project will cost only EUR 5.5 billion, has been managed entirely by government bodies, is now 80 percent complete and on budget, and will have taken only 12 years from start to finish. By contrast, the debate over sea defenses took almost 40 years -- from the catastrophic floods of 1966 until the final decision to start work in 2003.
Here is another lesson for the rest of Italy and Europe. Under the right circumstances, European businesses and even governments are perfectly capable of innovation and efficiency. The problem lies not in European traditions or technology or management or education, but simply in indecision and defeatism - the fatalistic belief that decline is inevitable and problems are insoluble, even when solutions manifestly exist.
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