Italy Mocks Europe's Rules by Counting Drugs and Prostitution in GDP!!

The Italians have a word for it: sprezzatura, or studied nonchalance. The news that Italy plans to include prostitution and illegal drugs in gross domestic product sounds like a joke. But it’s really an effortless solution to a difficult problem. By counting prostitution and drugs in output, Italy will raise its GDP and thereby lower the ratio of debt to GDP, which will make it easier to comply with European Union rules on indebtedness. That’s sprezzatura.

What we don’t know yet is how the rest of the European Union will react to Italian Prime Minister Matteo Renzi’s initiative. Other countries may conclude that Italy should not be allowed to make a mockery of rules that are intended to keep national deficits and debts under control. Governments are not supposed to let their annual deficits exceed 3 percent of GDP or accumulated debt exceed 60 percent of GDP.

This pyramid portrays the detailed process that the European Union has established to deal with countries that fall out of compliance. On paper, the penalty is a fine of 0.2 percent of GDP, plus a “variable component” that can range up to 0.5 percent of GDP annually as long as the breach continues.

In reality, the European Union’s bark is worse than its bite. A fine would only make a country’s deficit worse. At the moment 17 member countries are being monitored under what the EU calls “excessive deficit procedures,” while another nine (Italy among them) have emerged from excessive deficit procedures. Only two member countries, Estonia and Sweden, have never had excessive deficit procedures.