Axe Must Come for S. Europe Public Sector: Serra

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July 12 (Bloomberg) -- Davide Serra, Founder and CEO of Algebris Investments, discusses Federal Reserve and ECB actions and what that means for markets. He speaks on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)

If you look at the drama in southern europe, a generation of politicians that have been running europe for the last 30 years, they bought votes out of the old generation.

Guaranteed jobs or anyone at the expense of creating the means and mobility for the younger population.

That is why you have such a high youth unemployment.

Lots of consequences.

The first one is a social breakdown.

The young guys are starting protesting, some violently.

You are 50, 60, 70 years old, very highly paid with no skills.

There are younger guys without a job that are very highly changed -- highly trained.

If you look at the parliament, the average age is 60. there are more people their age that are likely to put them in office.

That is why you see a brain drain out of southern europe.

I was with an engineering company in germany with some of the best engineers they got out of the spain.

It is a double whammy.

Spain, italy, and portugal are training these people and putting the investment costs into the university and high school and the benefits are for other countries to harbor.

This time last year, people talk about a country having to lead the euro to becoming more efficient.

Many of the peripheral countries are along the way.

Who is ahead in that game?

First of all, there are two issues.

To come out of the euro is a dream of the anglo-saxon world.

You do not want to see the project failing.

The reality is, the political decision to keep the euro together is undoubted.

Mario draghi decision to put forward the omb, they have declared they are ready to fight.

For a country like greece or even ireland, a.d. valuation would be suicidal.

Your export sector is not big enough to accommodate or the inflation you bring in.

What matters is getting more competitive.

Every public sector is uncompetitive globally because it is a closed sector basically.

The drama is that the most uncompetitive of all of them globally happen to be in southern europe.

That is why tough choices have to be made.

Mario draghi was in london last july and said he would do whatever it takes to defend the euro.

That was giving politicians around europe may be a year or a year and a half to sort their house.

That has not happened.

The structural reforms have not been put in place.

Have they been put in place?

Why do you see portugal two weeks ago, a coalition that was not going to arrive -- to survive, and then markets went wild?

Ireland, portugal, and spain, reforms are being taken.

With mario monti, reforms were taken on the structure of pensions.

Spain is very competitive.

If i hear entrepreneurs around europe, the best ways to hire new guys is in spain.

I have invested in a business myself there.

We look at europe and decided to go in spain.

You can get a top engineer for 750 euros.

In london, it will cost you over 2000. the competitive edge is there.

The public sector is still way behind.

The only thing behind structural reform is italy on the labor reform.

-- on the labor law.

They made it more strict.

They wanted to labor allies, -- they wanted to liberalize, but they close a loop, and that led to laying off the young guys, which made it more troubled.

Is that an issue for 2014? italy has an advantage if you look at wealth.

As a percentage of gdp, it is four times.

They have the means.

It is like japan.

What happened over the last 24 months, they foreign minister has been steadily buying.

Italian debt is owned by italians themselves.

Secondly, what happens is in a primary surplus that is positive, the balanced budget at about three percent, they took the pension hit going forward.

That is important.

You might cut labor costs in the private sector.

The number of employees or cost per head.

We have no choice.

The average eu staff, european average public sector worker is paid 17% more than the european average.

And probably works less hours.

[laughter] if that is a given, there are so many institutions like a bloated sector.

This text has been automatically generated. It may not be 100% accurate.


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