Monday, September 19, 2016

Marcello de Cecco (1939-2016)

The Department of Economics and Statistics of Siena University held a day-long conference in memory of Marcello de Cecco on 17 September, which would have been his 77thbirthday. 

I first met Marcello in October 1963 in Cambridge. Our dear common friend the late Bruno Miconi, a fellow research student in economics, introduced him to me. I already knew and appreciated Marcello from his contributions to Mario Pannunzio’s Il Mondo, but I found him even more impressive in person. Flamboyant, brilliant, learned, ironical and witty, yet approachable, friendly, generous. We got on well immediately. I have been fortunate in having him as a friend and colleague not only in our Cambridge years but also at Siena University, at the European University Institute in Florence, and at the Sapienza University in Rome – in almost daily contact for a total of over 25 years out of the over 50 years of our association.

Marcello was an alert and insatiable observer of current economic, political and social affairs, never satisfied with simple explanations but searching for deeper causes, enquiring “come va il fatto”. I remember his surprise when the daily Il Fatto Quotidiano that follows a similar inquisitive approach was published. Bruno Miconi used to say that Marcello should have been a film scriptwriter.

A Pembroke man, Marcello was held in great esteem by his supervisor Michael Posner; given his interests in international finance he was also in touch with Kingsman Richard Kahn, who however suspected him (injustly) of monetarist inclinations, because of his contacts with Chicago and Milton Friedman. Marcello had created a considerable intellectual niche for himself through his work on Eurodollars – dollar-denominated deposits held outside the US, mostly in Europe, thus escaping regulation by the Federal Reserve Board including reserve requirements. In this area at the time he knew more than his teachers and his expertise was appreciatively recognised and utilised in seminars and discussions. We both were invited to become members of the Monday Group, a seminar in Economics held regularly if reservedly in King’s. We shared an interest in the history of economic thought, indeed in a little known Russian pioneer of mathematical economics, Vladimir K. Dmitriev; Marcello edited the Italian version of his Economic Essays on Value, Competition and Utility, I edited the English version. When it became apparent that we were working on the same thing Marcello simply said that nobody had a monopoly on that author. At a Faculty seminar we presented a joint criticism of the Modigliani-La Malfa model of the interaction of monetary and real aspects of the Italian balance of payments. Later we co-operated in other research projects, especially in Florence.

Marcello was unique – among Italian students in Cambridge – in that he had come with his Mother, not wanting to leave signora Antonietta on her own back in his home town of Lanciano (pronounced as if written Langiano). They looked after each other well. Somehow, in spite of linguistic obstacles compounded by the regional variety of food nomenclature, his mother always succeeded in securing from the butcher her desired cuts of meat. Marcello gave the delightful account of his mother meeting Piero Sraffa in Cambridge Market Square, when she greeted Mr Sraffa with: “I am delighted to meet you, Professor; my son has spoken very highly of you …”. Marcello theorised the optimality of driving only second hand cars, but he chose only beautiful comfortable large ones, including a memorable Jaguar. When a lectureship was advertised at the University of East Anglia, I encouraged Marcello to apply and supported his candidature strongly. His appointment was a great success, and there, too, he met Julia Bamford – the other great woman behind the great man – so that I could boast of involvement in his taking both a job and a wife.

When the prospect of Italy joining the Euro began to be widely discussed, in 1992 on the eve of the French referendum on the subject Marcello gave enthusiastic endorsement of Italian membership. He wrote an article for Repubblica – Affari e Finanza, entitled I disgregati del 2003, which marked the beginning of his long collaboration to Repubblica (18/09/1992, reprinted in L'economia di Lucignolo, Donzelli, see Marcello’s obituary by Carlo Clericetti). In that article Marcello described an apocalyptic picture of Italy as a member of a Latin Union (with France, Spain, Portugal and Greece) ten years later: backward, underdeveloped, impoverished, authoritarian, repressive, bigoted and male-dominated; the article ends with a decrepit professor, who dares teaching politically incorrect views about the evolution of the international monetary system, being arrested and taken away by police. By contrast the member states of the Mittel-European Union thrive and prosper even more than the Anglo-American Federation, and hire the young unemployed migrants from Italy, who send food parcels to their parents at home in spite of this being officially frowned-upon.

Marcello’s enthusiastic endorsement of the euro was tempered, when it actually happened, only by his disapproval of Berlusconi’s failure to contain price increases in the changeover from lira to euro, something experienced only by Greece and there to a much smaller degree. Marcello’s enthusiasm was right: the euro brought about significantly lower interest rates; that the fiscal space was not used to reduce public debt and on the contrary encouraged greater indebtedness is another matter. The euro also brought about a rate of inflation lower than that achieved in Germany by the Bundesbank itself, and greater European and global integration of trade and Foreign Direct Investment. It did not bring about economic growth, but this was due to poor economic policies and various factors both on the demand (e.g. increasing inequality) and supply sides (productivity slowdown, etc.).

Ten years after, there was a lot to justify Marcello’s evolving position as a Eurocritic. Austerity policies enshrined in the Treaties under German hegemony were self-defeating and suicidal, Marcello was a Keynesian dyed-in-the-wool and knew it well. The German trade surplus, which Marcello attributed primarily to the post-Transition integration of Germany with Eastern Europe regardless of the weakness or strength of the euro, contravened EU rules but was unduly tolerated, and pushed trade deficit countries to run public budget deficits. Improvements could have been made, even without renegotiating the Treaties. Failure to make progress not only towards a Federal Europe design, but even towards piece-meal improvements, justify Marcello’s latest position as Eurosceptic, especially considering that he never indulged in advocating Exitaly, the Italian exit from the Euro that many advocated and still advocate lightly and unthinkingly. On the Euro, Marcello was always right.

For Marcello, the current crisis of the Euro was triggered by the Deauville Summit of 19 October 2010 at which Angela Merkel and Nicholas Sarkozy announced that at least part of any default on public debt would be born by bondholders. At the time I disagreed strongly with Marcello: why should investors who had benefited from large interest differentials, knowingly taking the associated risk, not have to bear the entire cost of default? If worried by that risk they could always have covered themselves as much as they wished by buying Credit Default Swaps. Yet, with the benefit of hindsight, now I am inclined to agree with Marcello. It was the prospect of bail-in that created the spread and effectively split the euro area.

By displaying the richness and depth of Marcello’s contributions of a lifetime, the Siena Conference stressed how dependent on his wisdom many of us had become. Today I find myself often wondering what Marcello would have said about current problems. Many Conference participants asked themselves what he would have said about Brexit: the consensus was that his natural diffidence towards Britain as a free rider of European integration, and the various exemptions repeatedly negotiated by the British (no Schengen, no common currency, the British rebate), would have led him to conclude that European integration might have progressed and improved without Britain. But we have no hard evidence that he would have taken that line. And we have no clue on what view he would have taken about the European migration crisis or the Islamic threat or the US elections with their problematic presidential candidates. It is at difficult times like these that we miss him most.

P.S. On the Siena Conference see also contributions by Emiliano Brancaccio
Paolo Paesani Salvatore Settis and Carlo Clericetti.

Sunday, September 4, 2016


Since the night of 24 August a swarm of earthquakes of an intensity up to 6.8 degrees on the Mercalli scale have repeatedly struck an area of the Appennines in Central Italy, at Amatrice, Accumoli, Arquata, Pescara del Tronto, and some other locations in the regions of Lazio, Marche, Umbria and Abruzzo. The effects have been catastrophic: 295 dead, over 800 injured, over 4000 homeless, disrupted communications, entire towns razed to the ground. Two weeks later the earth there is still subject to frequent movements.

These events have brought out the best of Italy, with the fast, selfless and effective response of public personnel and volunteers, and the generous support of the general public. Emergency services have worked; 368 persons were extracted alive from the debris; €10 million were collected for earthquake victim assistance in the first week. At the same time, the earthquake revealed the worst face of Italy.

It is reported that the decision to undertake the repair and reinstatement of public buildings and churches damaged in the 1997 earthquake, without having to implement anti-seismic regulations, was a political decision taken by no lesser person than the former President of Italy Giorgio Napolitano – a controversial politician though still in some circles widely respected as a statesman while being equally widely reviled in others for his chequered political allegiances in the past – in the form of ordnance n. 2741 issued on 30 January 1998 by him while Minister of the Interior in the Prodi government.  Not a statesmanlike enlightened decision, then, but rather an irresponsible, vulgar austerity measure that contributed to the catastrophic nature of the latest earthquake: the buildings exempted from seismic upgrading by the Napolitano ordnance included, for instance, the church and the Carabinieri barracks of Accumuli, for which the responsible authorities can still claim that “all procedures had been followed”,

Furthermore bureaucratic hastles prevented the implementation of anti-seismic measures already decided and funded (e.g. for the Amatrice hospital). Corrupt officials had authorised the diversion of funds earmarked for the strengthening of vulnerable public buildings to other uses (e.g. from the bell tower of an Amatrice church to the priest’s residence). Corrupt builders, often with mafia connections, had used too much sand and too little cement, polystyrene in place of reinforced concrete and mosquito mesh in place of robust metallic welded sheeting (one of several well documented actual instances). Corrupt technicians and certification officers had ratified as good patently unsatisfactory works on their completion. The Mayor of Amatrice expressed the general opinion when calling for those responsible for any of these actions to be tried and imprisoned with the key thrown away, just as are the thieves trying to steal valuables from collapsed homes, or the impostors collecting funds through Internet allegedly on behalf of earthquake victims but keeping them for their personal use (again actual instances – though the Mayor is now under investigation).

Even the work of a number of volunteers has been called into question, with many of them turning out to have been under-paid workers precariously employed and exploited by the so-called no-profit organisations that have taken the place of public welfare institutions now privatised (see

In that their occurrence cannot be accurately predicted earthquakes are widely regarded as acts of god – though Italy’s peculiarities in this respect include the successful prosecution of six scientists and a former government official for failing to predict the Aquila earthquake of 2009. Actually they had tried to reassure the population saying that an earthquake was unlikely 6 days before it happened. They were found guilty of involuntary manslaughter of 29 persons and injuries of 4 persons, all were condemned to 6 years in prison and provisional damages of €7.8mn in favour of 56 victims. 

There is, of course, a highly respected geological service monitoring and investigating Italy’s physical structure and there are long-kept careful records of past earthquakes, and fairly accurate assessments of seismic risk in the Italian regions, certainly accurate enough to guide building counter-measures, insurance cover, and migrations to safer areas. Italy’s Protezione Civile's seismic map of Italy is updated to 2015.

It is, nevertheless, quite understandable that people living in high risk regions might be reluctant to voluntarily invest in anti-seismic improvements to old buildings which are not subject to the stricter regulations applying to new buildings. A cost, estimated to average about €800 per square metre, all the hastle, the paperwork, the applications for permits, the time and expenses involved, the possible appeals, not to mention the bribes that might have to be paid, deter action. And the contradictory norms: the Belle Arti department, responsible for aesthetics, is unlikely to allow a structural improvement that is not simply “conservative” but involves architectural change, while the Genio Civile responsible for safety is unlikely to allow a simple anti-seismic improvement that is judged to be inadequate. So even with the best of intentions one might decide to do nothing and hope to be unscathed by an uncertain though likely event.

It is also understandable that people living in high risk regions might be reluctant to insure themselves and their homes and possessions against earthquake risks. Insurance can be unavailable in high risk regions, except perhaps at prohibitive premiums that are simply unaffordable by most people. Were insurance to be made compulsory the possibility for insurers taking undue advantage of the position arises.

However, to a very great extent location is a matter of choice.  Over time and in the ordinary course of life, opportunities arise for changing location, not necessarily abroad (though in such a case migrants should be, though at present are not, granted the status of refugees), but moving to a different part of the same country, which presents much lower costs in terms of language, customs, currency changes and other obstacles to international migration.

Those who live in areas characterised by high seismic risk can be likened to, say, heavy smokers vulnerable to cancer or obese and sedentary persons vulnerable to cardiovascular diseases, or economic migrants crossing a dangerous sea. All of them are entitled to life-saving emergency assistance and are certainly entitled to any assistance that might be voluntarily provided by the generosity of the rest of the world. Otherwise seismic victims, like everybody else knowingly and deliberately adopting a particularly risky lifestyle, should bear ultimate responsibility for the consequences of their exposure to risk. Any claim on the public purse, i.e. ultimately on all taxpayers, is a politically determined policy choice, not a statutory right.

To the extent that a government might decide to provide more than temporary emergency assistance to earthquake victims, this is best provided in the form of a cash payment, whether a capital lump sum or a recurring subsidy, which earthquake victims are able to spend where and how they wish. The notion that towns razed to the ground by earthquake should be re-constructed “where they were, as they were”, while emotionally responsive to great loss is, in truth, populist fantasy. 

Italian Premier Matteo Renzi has produced out of thin air a “Piano Casa Italia”, including the anti-seismic upgrading of all public buildings, of productive establishments and the entire housing stock of the country. After a four-hour consultation with him Renzo Piano – life senator and architect/planner extraordinaire – bluntly and soberly warned that such an undertaking would take at least 50 years and two generations. No wonder the responsibility for the Plan was given to somebody else.

Renzi proposes, further, to finance such a Plan outside the fiscal constraints of the EU; European authorities have sympathy for such treatment for only short-term and relatively small emergency interventions. The “Piano Casa Italia” so far is only a meaningless label, without dates or details or finance attached to it. Just another of the many empty announcements to which Renzi has got us used.

Meanwhile earthquake victims – of the latest like those of earlier earthquakes – will be left ultimately to fend for themselves, resigned to their destiny because they know well, in the depth of their souls, that maybe before the ground shook under their feet they should have moved elsewhere.