Living in Italy always feels like a great privilege for me. I never expected that a ‘lad’ from Yorkshire would be having the opportunity to live the life I now do. Of course, it comes with it’s issues and there are many people who, every year, also make the decision to want to come and live in ‘Il bel paese‘.

However, as I have found out this year, there are those who also get refused this opportunity when they have applied for ‘residenza elettiva’. (elective residence in which you demonstrate to the Italian ‘Consolato Generale d’Italia’, that you have the financial resources, now and in the future, to be able to live your life in Italy without becoming a burden on the Italian state). There are certain criteria which you must meet, such as minimum income levels and financial independence.

Since Brexit, of course, many UK citizens who previously only had to trot off to their local comune and register as residents in Italy, under their EU citizen rights, are now subject to much stricter assessment of their financial affiars before a visa will be granted to enter the country and life begin in Italy.

Over the years I have met many people (US citizens mainly) who have been through the elective residence process and managed to get the necessary visa to come and live in Italy. I also learned that many managed to do so without meeting the strictest financial requirements. Instead with some help and understanding of the types of accounts they held in the US they were able to assist the consulate in assessing their application, at which point the elective residency was granted.

The people I have met this year (all Brits) who have been refused the elective residency visa were refused due to failure to strictly adhere to the rules. (Strict adherence to rules not being something that Italians are famous for).

This is quite sad to see because, firstly it could be said that the British citizen might be treated unfairly due to Brexit. There is no evidence to suggest this. It is merely a hunch, but one which is shared with a few other professionals with whom I have been in touch about this. Secondly, there are certainly the rules, but interpretation is everything and as you will see from reply from the Consolato below, certain assumptions have been made by the assessor regarding this specific application which could be argued to be true and fair, but would still not affect this persons ability to live comfortably in Italy without being a burden on the state. (I can attest to this as I conducted an initial financial planning exercise with them) It would seem the absolute letter of the law is being applied here when in fact merely the extracted statement below from the legislation itself gives a significant amount of discretion to the assessor.

‘Il visto per residenza elettiva potrà essere esteso anche al coniuge convivente, ai figli minori o maggiorenni se conviventi e a carico e ai propri genitori, qualora le condizioni finanziarie suddette siano sufficienti a garantire il mantenimento di tutti i soggetti interessati.’

The point to this E-zine is to say that this application was likely refused because the application was not prepared with the help of an Italian professional (lawyer and commercialista) who could a) interpret the foreign held accounts for the assessor/s and explain how they function and b) provide a signed and certified overview that would be seen by the Italian authorities as more credible than merely statements from the applicant themselves.

I hope that if you, or someone you know is going through or about to go through the elective residence process then you can pass this E-zine and message to them. Take professional advice (lawyer and /or a commercialista) before submitting the application. Once granted then financial planning is also critical.

The applicant mentioned in the letter text below is being contested directly with the Consolato Generale d’Italia, now with legal help, but this could take up to 2 years. It might have been avoided ( possibly not) if professional help had been sought at the start.

Please feel free to pass the E-zine onto anyone you may know who this affect or of whom it might be interest to. The more we spread the word the less likely mishaps and refusals will occur in the future.

If you would like to discuss this or any other content I have posted online, or merely to discuss your financial situation for life in Italy, then please do not hesitate to get in touch:
Tel: +393336492356 or gareth.horsfall@spectrum-ifa.com
I would be happy to try and help where I can. 

I wrote this article because during this Easter period we decided to stay in and around Rome. We took a number of long bike rides around the city and along the Tiber and I could not help but notice the spring green of Rome, once again.

It’s an amazing sight and one that I feel grateful for. It also reminded me that whilst the investment markets are still recovering slowly and tentatively from last year’s sell off due to the Ukraine/Russia war, they are cyclical by nature and whilst, as humans, we will always tend to run from one crisis to another, there will inevitably be times of abundance and plenty.

My experience of olive trees through my clients

You may have olives’ trees that you tend to in your garden or land, in Italy. I know that many of my clients do, and take great satisfaction in looking after them year in year out to harvest the precious oil that comes from them but, listening to the tales over the years, I can make many comparisons with investment markets.

The ‘Ulivo’ goes through the seasons of the years but never appears to bear fruit in a linear way. In fact, many of you tell me that some years the ‘Ulivo’ may not produce any fruit, other years it is plagued by the ‘moscerino’ (little fly), other years there isn’t enough frost or too little frost and some years you get a double harvest. In other years your friend with the neighbouring field, facing a different direction, has a bountiful year, whilst you have none. None of it seems to make any sense. All variable factors under which you have no control but you accept as part of your nurture for the ‘Ulivo’.

It seems that like every living breathing organism, the ‘Ulivo’ will provide what is needed, but not necessarily in the way you would always want it to. A defined amount of litres of oil each year, just enough to feed my family and friends would be fine. No such luck!

It is easy to forget that the component parts of investment markets are in fact living breathing human beings. Every company, government or supranational is run by people who are subject to folly, excess, corruption, huge advances forward, amazing decisions which benefit everyone, building and growing enterprises and generally trying to find a healthy balance.

Just like the ‘Ulivo’ the investment markets go through their cycles of life according to many variable factors of which we have no control. Flowers blooming (markets rising), leaves falling (market falls), harsh winds (the volatility), buds sprouting (opportunities presenting themselves) and then the cycle repeats itself. Your portfolio goes through its own cycles of life.

I have seen in the past that people new to Italy, and the ‘Ulivo’, have talked of uprooting an old tree (with those amazing architecturally contorted trunks) because it’s old and no longer bears fruit, only to be told by someone with more experience that it just needs to be trimmed in the right way, at the right time of year and creating that hollow space in the middle of the tree so the light can shine through (the equivalent of a review of your portfolio) only for the tree to once again bear fruit when the conditions are favourable for it to do so. This is not to say that dead or dying plants should not be replaced. If they have served their purpose and need to be replaced with a younger healthier variant then so be it.

There are so many similarities between our investment portfolios. The timescales and the variables may differ (wars or winter / inflation or summer) but the ebb and flow, the rises and falls and the seasonal changes are ever present.

The coming years may be lean years, or could provide us with way more then we could ever want or need. Ours is not to know, nor have any control over the variables, but only to do the best we can to make sure that we look after what we have.

If you find it difficult to stick with your investment strategies and would like to get busy trying to chase market returns (I include myself in this group, but am trained enough to know that it doesn’t generate higher returns), the research shows that it has no better effect than generating higher transaction costs and other fees associated with switching investments frequently. The only thing you can be assured of is lower investment returns as a result.

Patience is key! Live the seasons and wait
for abundance to once again raise its bountiful head.

Let’s talk cash!

OK, now that I have my hippie moment out of the way, we can get back to talking about financial things again. So, let’s talk about cash that you might have sitting around and finding a better home for it.

Unfortunately, as many of you find out, once you leave your home country and become resident in Italy, you are almost instantly excluded from taking out new financial products in your home country and instead need to look at what other offerings are available to you here. This means often looking at what Italian or EU based banks can offer, and principally in EUR.

A number of people have mentioned to me recently about the savings rates available in the UK, nearing 5% in some cases and wondering whether they can achieve anything similar in Italy or the EU. The answer is that there seems to be very few, and where they are available the interest rate varies between 2.5% and 3% gross max for 1 year deposits, rising as much as 4.5% if you are willing to lock your funds up for 3 years. In addition, you have to look out for accounts which are ‘vincolati’ i.e. they have terms and conditions attached. These may be as simple as locking you in for a specific term (fixed deposit) or requiring you to open a current account and transfer your basic banking to them as well. In true form things are made a little more complicated than somewhere like the UK.

Italians, of course, are akin to also looking at their home country government bonds which are currently paying around 3% interest gross at the moment. having dropped from about 3.38% gross around the beginning of March.

One advantage of investing in government debt directly is that it offers an attractive tax rate at 12.5% rather than the 26% for other financial instruments.  Placing cash monies into short term Italian or EU government debt, if you are seeking better EUR returns on your cash, might be a useful alternative to seeking out a higher paying deposit account. (Bear in mind that if you want your capital back at the end of the bond period then you need to wait until  bond term matures. Selling early could mean a capital loss). Of course, if you are seeking better returns in other currencies then you can buy government debt in that country instead.   Government debt, wherever it is purchased still attracts the 12.5% tax rate on interest in Italy.

If you are simply looking for a deposit account then you could do no better than compare rates on facile.it or confrontaconti.it 

The only way to purchase government bonds is through an exchange mechanism such as an investment platform.  In Italy, investment and banking are highly institutionalised so speaking with your bank might be the best way to approach it if you are new to this kind of investment.  Otherwise, a quick online check with throw up some other solutions.

Inflation considerations

Whilst these rates offer considerably more than the last decade it is indicative of the bigger and more aggressive trend upwards: inflation.
For perspective, the USA and UK are experiencing inflation ( measured by the Consumer Prices Index) at around 9% and 10% respectively. Italy is currently on 7.7% inflation year on year.

So, regardless of how much you might make on a deposit it is always going to be well below the rate at which the spending power of your savings is being eroded year on year. You may know my thoughts on the matter already, as I have mentioned it in previous E-zines, but I think inflation is here to stay, and I am deeply suspicious of the opinions that it will fall back to 2 or 4% within a year or so. There is so much debt in western economies and the only way to rid ourselves of it, and bring back economic stability to the west is to inflate it away. That could mean more medium term pain.

In summary

If you have cash lying around in deposit accounts, cash which you may need for an emergency or just need to live on, then seek out better interest paying accounts. A good strategy is to keep approx. 6 months cash on hand and then stagger your further 6 months cash needs in 6 month deposits, 12 month,18 month etc. In this way every 6 months you have a maturing deposit when your cash starts to run out. If you don’t need the cash then you just roll it over into another longer term deposit.

But whatever you do, don’t keep all your life savings in cash hoping that a higher interest rate will protect you from rising prices. It won’t!

The banking sector appears to be in the midst of a wobble at present, so it seems like a good idea to examine exactly how worried we all should be about our banking arrangements.

As no doubt everyone will have read, the current concerns have been triggered by Silicon Valley Bank, an institution the existence of which I was blissfully unaware until it suddenly collapsed. On examining what happened to SVB, the most startling thing to me was that it essentially suffered a good, old-fashioned bank run: depositors lost faith, ran for the exit and, well, you know the rest. The bank didn’t even have particularly exotic lending practices – most of its problems were caused by the fact that it had purchased government bonds with relatively long maturities, which had suffered temporary losses due to rising interest rates (the value of a bond will fall as interest rates rise, but this generally won’t result in a loss if you hold it until maturity).

If the crisis had been circumscribed to SVB and a couple of other similar banks in the US, we might all have gone on without further thought, but then all of a sudden we found out that Credit Suisse was in trouble. Was this the same sort of crisis, or something new? In reality, CS had, in the words of one analyst: “spent the last decade finding astonishing new ways to lose money and embarrass itself”. Some of the best examples of this were: allowing drug money to be laundered in Eastern Europe, getting caught up in a corruption scandal in Mozambique, channelling client funds to a fraudulent trade finance lender and a spying episode involving management and former employees. It is fair to say that CS had made its bed quite well and recent events finally forced it to lie down.

Once we had digested the idea of CS’s failure, then the market started to be concerned about Deutsche Bank – another institution which stands as an example of the colossal risks emanating from global banks with a wide variety of activities, from retail to investment banking and everything in between. For the moment, at least, it would appear that the markets have been soothed somewhat, but one could be forgiven for being concerned over the safety of one’s money in the current environment.

How safe are deposits with Italian banks?

Turning to the safety of Italian banks, we need to examine the provisions of Italian depositors’ insurance, which is available up to €100,000 per account holder (so if you have a joint account, for example, you get €100k for each person). Opening more than one account with the same bank doesn’t change anything, but opening an account with another bank would give you a further €100k for funds deposited with that bank.

As always, however, there are a number of devils in the detail, and the FITD (Fondo Interbancario di Tutela dei Depositi), the entity that provides the guarantees, has its fair share. First of all, it should be noted that all banks licensed in Italy must adhere to the FITD, which functions like a mutual guarantee system. What this means is that if a bank fails, the FITD basically has a whip-round amongst the other member banks in order to make good on the guarantee. This might be all well and good when the bank in trouble is some rustic banca popolare, but if it happened to be one of the big names, then this would almost instantly translate into a systemic crisis whereby trying to prop each other up would lead to them all falling over. The image that comes to mind is that of a group of drunks staggering down the street trying to keep each other upright. At that point the big question would be whether, and to what extent, the state would step in to provide a blanket guarantee. The current orthodoxy in such matters would seem to imply that some sort of guarantee would be forthcoming, although obviously much would depend on the state of the public finances at the time.

The mechanics of FITD guarantees

The FITD has been in existence since 1987, but only recently has its name (“Fondo” meaning “Fund”) actually corresponded to the reality of the situation. Up until 2015 the guarantee was totally unfunded, but a 2014 European directive obliged member states to institute depositors’ guarantees of €100,000, and for these to be pre-funded in the measure of 0.8% of the total guaranteed deposits by 2024. As of the end of 2022, the FITD had funds of €3.3 billion to cover €740 billion of guaranteed deposits (i.e. those under €100k), so roughly 0.44% of the total. The FITD forms part of EU and Italian banking regulation mechanisms and has been used primarily as part of various solutions contrived to avoid failure for struggling banks in the first place. In fact, since 1987 the fund has paid out about €3.3 billion, of which only €77 million was used to make depositors whole, with the rest being used to fund “solutions” to avoid collapse – the most recent example of this being Banca Carige which received €530 million as part of its sale to Banca BPER in 2022.

In the background, the EU is working towards EDIS – the European Deposit Insurance Scheme – which would institute a pan-EU fund as part of the banking union, but the machinations of this project have yet to be worked out satisfactorily, so for the time being we are stuck with national systems, albeit ones offering similar guarantees.

So what does this mean for me?

Notwithstanding the inherent weakness of a system based on mutual guarantees as described above, it would appear that the €100,000 minimum would be respected in any reasonable scenario. It also seems likely, based on past form, that the state would intervene to encourage a solution in any critical situations long before even a relatively unimportant bank actually failed. The fact that the depositors’ insurance is based on an EU directive also seems to imply that any need for state intervention to guarantee the basic level of depositors’ protection would be supported by the EU. So on the basis of all this, it seems reasonable to choose your local Italian bank by considering the services it is able to provide you as opposed to any perception of its security.

The proviso to the above is that you make sure to maintain only a modest amount of money in any bank and look at more secure solutions for the bulk of your financial assets. In this context, EU investment wrappers remain the gold standard for Italian residents, offering greater levels of protection as well as myriad other benefits – please take a look at this article – and get in touch if you’d like to explore how this might work for your own situation.

This may seem like something of a provocative title, but I am merely picking up on the common refrain that Italy’s current government is the most right-wing since the fascist era.

It would be no minor issue for the country if indeed we did find ourselves heading down a similar path, so rather than simply dismissing out of hand the possibility that Meloni could be a Mussolini for the new age, I thought I would look into it further. We are, after all, talking about someone who as a much younger woman expressed the view that Mussolini was “a good politician”, whatever exactly that is supposed to mean. I imagine we all expressed at least some views when younger that we might cringe to think about today, but certainly Meloni’s comment on Mussolini was something of a clanger considering the office she now occupies.

Before we talk about Meloni’s politics, let’s think about the difference between the Italy of 100 years ago and today. 100 years is a useful timeframe, because 1922 was the year of the March on Rome – the moment when the fascist movement kicked into a higher gear and, notwithstanding the fact that it was poorly resourced and even more poorly organised, managed to bring Mussolini to power. The fascist movement had begun a few years earlier, populated initially by disaffected soldiers returning home to anything but a victor’s welcome following the First World War. Subsequently, the fascists managed to find their raison d’être and much broader support in the fight against socialism/communism, yet the entire movement might easily have fizzled out had it encountered even a modicum of resistance from the monarchy and the political establishment or if one of the many assassination attempts on Mussolini had succeeded in the early years of the regime* .

As fascist power grew, the desire to return Italy to its rightful place in the world, as heirs of the Roman Empire, took hold of Mussolini’s imagination, leading to the conquest of such places as Libya, Ethiopia and Albania. At home, the country was dragged into the modern age through the execution of public works programmes as well as monumental changes to cities such as Rome. The next time you wander down the via dei Fori Imperiali, consider that you are in an area profoundly changed by Mussolini, who demolished an entire area of Rome to make way for what was initially called via dell’Impero – put in place so that he could see the Colosseum from his office in Palazzo Venezia at the far end of the road. It is fair to say that from an economic and social perspective, the Italy of 1922 is almost unrecognisable compared with the country we live in today.

Now let’s consider the Italy of 2022 that swept Giorgia Meloni to power. Notwithstanding its difficulties, Italy is undoubtedly among the wealthiest countries in the world. I know there can be large regional differences and often the systems are confusing, but generally speaking Italian healthcare, education, infrastructure and other public services range from adequate to excellent. Italy is the home to world-leading industries and is certainly a place where one can rise through the social hierarchy regardless of one’s origins. If you need proof of this, consider that Leonardo Del Vecchio, the founder of Luxottica who died last year as one of Italy’s richest men, was born in 1935 to a solo mother and grew up in an orphanage.

Italy has many of the hallmarks of modern, well-heeled democracies, including an ageing population and a prevalence of small families (when people decide to have children at all). It is incredible to think, but over the course of my lifetime (I’m not quite 50 years old), the number of babies born in Italy each year has halved from about 800,000 to about 400,000 currently. The odd incentive for young families isn’t going to change that trend in any substantial way.

Imagine, now, if you will, that Meloni decided to pick up the fascist cudgel and start to take a more aggressive geopolitical stance. The current army of one-child families is probably the greatest guarantee against this because how many of these parents will permit their children to march off to war? Occasionally one does see fascist meetings – for example I recall seeing one reported in Cremona to commemorate the death of Roberto Farinacci, a particularly hardcore exponent of the black shirt, but to be honest the sight of fat old men singing “Giovinezza” (the fascist anthem, dedicated to youthful courage), was as comical as it was pathetic. It is also amusing to note that one of the main scandals so far in the Meloni era has been her decision to use the masculine article “Il Presidente” as opposed to “La Presidentessa” or something similar. This seems to me to be the kind of problem you discuss when you really don’t have any serious problems (or, perhaps more accurately, you don’t wish to discuss the various intractable problems that do exist). I also don’t think we should be particularly concerned over the apparent revival of Berlusconi’s connections to Putin: he simply can’t accept that he’s become a marginal figure, almost a caricature of himself, so he’s returned to his advertising roots and is willing to do anything to get attention.

What I do see is a general trend towards nationalism, which can, I suppose, be seen as a very watered-down version of fascism. There is at least the possibility of some expansion of state participation in business, although one can but hope that no one is considering a return to the days of IRI (L’Istituto per la Ricostruzione Industriale) – the behemoth state holding company founded during the fascist era that for decades controlled huge swathes of the Italian economy. In this context, it is disturbing to hear discussion of the potential nationalisation of Telecom Italia (TIM), although this might be best seen as an (expensive) opportunity to correct a poor privatisation that left the company imprisoned by its debt burden. It is more likely to see the state getting involved at a smaller scale, with the recent trend in the use of the state-controlled CDP (Cassa Depositi e Prestiti) for financing and even venture capital activities an indication of things to come. It is also more than likely that the state guaranteed loans issued as part of Covid support measures will eventually result in the need to absorb zombie businesses in politically sensitive sectors.

All in all, it seems to me that Meloni fortunately has neither the innate tendency towards fascism, nor a populace willing to be led in that direction. We would probably do better to think about whether the current global trend of rearmament will lead to problems in 10 – 20 years time when all the shiny new weapons are ready for use. I worry that if you build enough of them then sooner or later an excuse will be found to use them – violence is violence, regardless of political ideology.

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¹Using US market data – S&P500 for equities and 7 – 10 year Treasuries for bonds

The good news is that after the difficulties of 2022, many assets now offer better value than they did 12 months ago, but whether or not 2023 will offer great returns or is destined to test our nerves again is a matter of great debate.

It would be tempting at this point to start looking at economic forecasts for 2023 to get an idea of what to expect. The issue here is that which I examined in my article on inflation – we can’t actually know what the future holds, so let’s concentrate on putting together a portfolio that is likely to serve us well as we attempt to generate a reasonable return for the medium-long term.
Far more important than economic prognostication when constructing a portfolio is understanding your own risk profile, because this allows you to give appropriate consideration to matters that you can ascertain and that will certainly affect your investment returns. In no particular order, you need to be thinking about:

• Where are you in the life-cycle of contributing to or drawing down from savings?
• What are your overall financial resources and how adequate are these compared with your needs?
• What are your aspirations?
• What is your ability to withstand market volatility?
• How much do you worry about your money?

Once you have answered all of these questions, you can come up with an appropriate posture to risk. Whether or not you should vary this posture depending on the current market circumstances is a question that you must try to answer at the outset. If you are going to change your posture on the basis of current circumstances, then you must believe that somehow you are able to understand the current situation better than the market consensus, and also understand the affect your view might have on the markets if it happens to be correct. Your assessments might be correct occasionally, but are also likely to be wrong quite often (rather like those of professional forecasters). This leads to the maxim that for nearly all people, nearly all of the time, the appropriate posture is their neutral one based on their risk profile.

There is one other extremely good reason why you would always be well-advised to maintain this neutral posture: it will help you to avoid the cardinal sin of investing – selling low. As I explained in the article linked above, long-term investment offers magnificently favourable odds of good returns, but if you are prone to selling at the bottom, as you may well be if you decide to oscillate between “risk-on” and “risk-off” postures, those odds are turned upside down and will likely cause serious damage to your wealth. Of course, you might also end up buying high occasionally, which may lead to a period of regret, but if you have invested wisely, then time will iron out these wrinkles. It is undoubtedly better to concentrate your attention on what you can know and influence, rather than wringing your hands over economic forecasts.

These are complicated issues that all investors have to face. My advice aims to keep you focused on the important issues rather than leaving you to try and puzzle through the ever-present “noise” in the investment markets. Over the long-term, you will almost certainly find that ignoring the distractions provided by the market action in years like 2022 will contribute to, rather than detract from, your investment success. If you would like to know more, or to conduct a review your current portfolio, then feel free to get in touch for a no-obligation consultation.

Subscribe to my podcast
IFA (Italian Financial Adviser) on:
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