A tale of two economies: From Australia to Europe—Part 1
In January this year, I partook in the Monash International Study Program in Banking and Finance where students were given the opportunity to travel to Europe, and presented with the chance to observe the economic situation in Europe and experience the different cultures and business practices. We visited an array of world-leading organisations including the Bank of International Settlements, the World Bank and the Bank of England. It is my hope this article will not only illustrate my observations I made during my travels, but also assist other students contemplating participating in this worthwhile program.
My cohort of Monash colleagues began our study trip in Rome, right in the middle of an Italian winter. From there, we visited the world’s oldest bank, Monte dei Paschi di Siena, in Siena. Despite the grandeur of the façade, the sheer age of the institution and its expansion from just Siena to throughout Italy, there was much discussion amongst my fellow students about the financial difficulty it endured during the European debt crisis.
Also, whilst Australian commercial banks have certainly been embroiled in scandals, these were not on the same scale as the European scandals and did not have the same devastating effects. In Europe, this sort of flagrant corruption is present even in the world’s oldest bank. It made me think of the comparative strength of the banking system we have in Australia in terms of prudential regulation and a limited shadow banking system.
In Italy, most of the restaurants we tried to go to for lunch were closed. There seems to be a culture in Italy that tardiness is not an issue, with a fairly relaxed approach to deadlines and formalities. Italians (at least southern Italians) seem to emphasise more casual exchanges and agreements.
This cultural difference in the way of doing business typifies the culture southern Europeans (i.e. the PIIGS nations) as compared with the northern Europeans. The blasé approach to business may or may not have contributed to the economic mismanagement in the PIIGS countries, but the casual hours of a humble shopkeeper seemed to epitomise this culture. The vastly different cultural practices of the Eurozone nations have contributed, and continue to contribute, to the volatility of the Euro currency. It is also what has led a lot of recent political tension between the perceived ‘lazy’ Greeks and ‘unforgiving and inflexible’ Germans. The cultural differences are often a stumbling block to finding solutions to the euro crisis, a problem not faced by the Australian government or RBA.
Spending time walking the streets, I found it intriguing that so many immigrants were selling selfie sticks. Two thoughts were provoked by this experience. First, it was obvious that all these competing salesmen were working for the same provider of selfie sticks. The amount of selfie-stick salesmen provided a false sense of competition. Secondly, this is a whole industry that goes untaxed. All sales are without receipts and they are all cash in hand transactions. This is obviously a burden on the Italian economy due to the revenue foregone.
It would be a great boost to European economies if they could formulate a solution by somehow documenting these illegal workers, and taxing them in return for providing them social security. Such a move would surely decrease the desperation these people have and would decrease the incidence of petty crime, such as pick pocketing, which in turn should attract more tourism. Whether European countries can create such a system remains a question of affordability and political willpower.
Geographical proximity helps reduce transaction costs for businesses, as well as better financial and brokerage services. On a more macro level, the fact that Europe is such a small, densely populated continent with so many major cities located so close to each other is a major economic advantage. Australia does not have this advantage, being a sparsely-populated, arid continent. Instead it relies on agriculture, education and mining in its exports, as well as having a positive capital account through foreign direct investment.
We then travelled to Lucerne, and I noticed a very different culture in Switzerland, compared to Italy. It was astounding at how much could change as soon as I crossed the border…
To be continued…