This time it will be Europe that goes bust

Updated on

Below is a new interview with Luigi Zingales, finance professor at the University of Chicago,, published in today’s issue of the Swiss Business newspaper Finanz und Wirtschaft by editor Christoph Gisiger. Excerpts from the interview re-printed with permission.

Trumps victory could energize populist movements in Europe. What does that mean for the upcoming constitutional referendum in Italy on December 4?
Very few people understand that this is a self inflicted wound. There was no need for a referendum. Italy’s Prime Minister Matteo Renzi initially thought he would have a gigantic success and so he asked for having this confirmatory referendum on his reform. But the reform is not that great. So it was basically Renzi’s stupidity to put this entire thing on the bloc.


Mr. Renzi vows to quit as PM if he loses the referendum. Could that eventually lead to Italy’s exit from the European Union? For instance, the UK already voted to leave the EU this summer.
I’m sorry to say that, but the Italians are not British. UK’s PM David Cameron said he will resign the next day after the Brexit vote and he did. In contrast to that, Renzi said he will resign the next day if the referendum gets voted down and he will not. So my view is that even if he loses he will stay on.

It’s not just Italy and the UK. There’s a growing rejection against the EU in many other European countries as well.
The fundamental problem is that the wealthfare system is basically at the national level but all the major economic policies are decided at the EU level. So people are resentful exactly for that reason. They become nationalist or populist because they feel completely unprotected against the risks that come from globalization and technology shocks. So either Europe makes a concerted effort and creates a wealthfare system at the EU level or Europe is destined to fail.

Donald Trump was playing exactly to those fears. Is he really going to stand up for the little guy against crony capitalism and “drain the swamp” in Washington?
Trump made his money in real estate which is probably the most corrupt sector in every country in the world, including in the United States. He says that he’s an entrepreneur. But I think he is a real estate tycoon which is a very different thing than an entrepreneur and even a different thing than a business man. The way you make money in real estate is by having the right contacts and by striking the right deals. It’s not by managing very efficiently or by implementing innovative ideas. Also, you have very little competition in real estate because many times the tendering process for real estate projects is rigged. So Trump has not really a good idea what competition is about, exactly like Silvio Berlusconi in Italy.

Are you saying that Donald Trump is basically an American Version of Silvio Berlusconi?
This is where the analogy gets a little bit stretched. In the case of Berlusconi there was a very obvious reason why he was running for prime minister: If he had lost the election he would have lost his media empire, in part because of judicial inquiries and in part because of the debt he had at that time. So running for office basically saved his life. That’s not the case with Trump. He would have survived happily without running for president.

Is that a good thing or a bad thing?
It creates an advantage and also a disadvantage to Trump. His advantage is that he has not an agenda which is to enhance his businesses. In the United States, real estate is mostly a local business where the authority of the President is close to zero. In that sense this is good. But on the other hand Berlusconi’s agenda protected him against the worst possible scenario. Because Berlusconi was trying to save his company, he has always been against major tensions. Despite all his defects, he was ultimately a moderate in the way he ran the country. That can not be said of Trump. I think there is much more violence in Trump than in Berlusconi.

So do you think he’s actually going to fight against the establishment?
This is exactly where we need to figure out what kind of President Trump is going to be. So far he has been the big outsider, fighting for those people who Hillary Clinton called the “deplorables”. But now he is in power and because of his background and because of who he is my suspicion is that he’s going to forget the deplorables and that he’s going to get in bed with every possible lobby that exists in the world. He was probably the first Republican candidate that was not endorsed by the chamber of commerce. But now I doubt that the chamber of commerce would not try to jump in bed with Trump because they always try to jump in bed with whoever is in power.



What would a good version of populism look like?
We could channel populism to destroy the corrupt and crony components of capitalism. What are the things that keep people in the United States behind today? High prices! On reason for that is a high concentration in many industries. So using the anger to add more antitrust could be good. Another idea: The school system in the US is dominated by unions which makes learning actually more difficult. In my view the unions are one of the biggest enemies of education. Introducing more competition at every level would make the system better, exactly as it was done by President Theodore Roosevelt at the beginning of the 20th century.

How high are the chances that this is going to happen?
I don’t give it zero probability that with Trump this might happen. When he was campaign he was smart enough to pick up some of those ideas. For example, in the platform of the Republican party the possibility was included to reinstate the Glass-Steagall Act. But now, I’m reading that Trump is considering people like Jamie Dimon as Secretary of the Treasury. So I fear he’s going to be a disaster to the US like Berlusconi was to Italy.

Full interview here


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