Monday, August 15, 2011

No Roman Holidays

I am in Italy where, it has been said, even the statues go on vacation in August. While this is the feeling one normally gets in the summer, the Italian government, under pressure from the European Central Bank, has just—in a short period of time—put together a series of decisive reforms. Little was left untouched, from cuts that reached into the pockets of politicians, from whom many privileges have been taken, to the abolition of small provinces to reduce the costs of local governments to tax increases —including a new “solidarity fund” which will require temporary tax increases for those whose income is above 90,000 Euros—to increases in the pension age for women (a gradual move from age 60 to age 65).

This was no Roman holiday (for those of you who have seen the wonderful movie with Audrey Hepburn and Gregory Peck) for the Italian politicians, who have used all of the tools at their disposal to rein in the deficit and tackle a public debt as high as 120% of GDP. And for those who think these are the reforms that Socialist Europe makes, I want to remind readers that Italy, in fact, has a right-wing government. For those who wonder why this was not done before, I would argue that this is a good way to use a severe crisis (no crisis should be wasted) to convince both citizens and politicians that changes are necessary.

The reason I have chosen this topic for this blog posting is that in many countries around the world the crisis has profound consequences, with or without changes in government policies. In the newspapers, the first pages are now dedicated to economic news. Long articles are written about the reactions of the financial markets, about the spreads in the government bonds of different countries, and about the economic measures that countries have taken in reaction to a severe crisis.

This is another reason why we need financial literacy. Every day we read and hear economic news. This news is not only affecting or reflecting the macro economy but has an effect on our lives. The behavior of financial markets is affecting our savings, our cost of traveling abroad, our capacity to retire or to donate to the initiatives we deem important. Similarly, the changes in economic policies are affecting the services that we get from the government, our income, our capacity to find a job or to get a good education. We need to be able to understand what this news means, we need to be able to take advantage of the opportunities offered by the financial markets, we need to be able to understand the causes and consequences of the economic reforms that governments are proposing to us. And it is perhaps in a time of economic crisis that we need financial knowledge the most.

So, while Italy pauses during this national holiday, I am writing a new blog post about financial literacy because it is a regular Monday in other countries, because many stock markets are closing with moderate gains today, and because economic crises may even bring good things, for example new and much-needed economic reforms.

If some of you are wondering what I will do with my non-Roman holiday, I will do three things: bask in the sun, go to the opera, and of course write more blogs.

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