On the way to my holiday in Italy this year, I had an epiphany about the state of the world economy. I stopped for lunch in the truly miraculous Piazza dei Miracoli in Pisa, where Galileo Galilei is said to have dropped cannon-balls from the Leaning Tower to test his theories of motion. A few years later, Galileo invented the telescope to amass the detailed astronomical observations that were needed to prove beyond reasonable doubt the heliocentric theory of the universe — the idea that the earth revolves around the sun and not the other way round, as the Bible implied. Galileo was famously tried by the Inquisition for this heresy and decided to recant, presumably inspired by what happened to his fellow-mathematician Giordano Bruno, who was burnt at the stake for similar ideas. But after mechanically recanting, Galileo muttered under his breath the rebellious phrase for which he is still renowned: eppur si muove — “and yet it moves.”

As I enjoyed my lunch in Pisa, Galileo’s defiantly optimistic words echoed through my mind. “And yet it moves” seemed perfectly to describe what I had felt about the world economy and financial markets since the crisis of 2008.

For the past five years, the media and financial markets have resounded with prophecies of doom. Economists have strained to prove why life would never be the same again; why bankruptcy was inevitable for great nations such as Italy, France, Britain and even the United States, Japan and China, and why the pre-crisis decades of prosperity would have to be followed by an era of repentance — or else a Biblical Day of Reckoning would be upon us.

Yet the world has continued to turn, even as the Last Trumpets were sounding. Since early 2009, economic conditions in most of the world have been steadily improving, employment has rebounded in the United States, Britain and Asia and recently even in parts of Europe. Corporate profits have been expanding everywhere and stock markets have risen almost without interruption.

The gap between dire predictions and reality is particularly striking today in southern Europe — especially in Italy. With unprecedented unemployment, governments falling like bowling pins and the euro project crumbling, for many pundits some kind of social collapse seemed inevitable. Yet there have been no revolutions, no breakdowns of democracy, no serious public revolts, even in countries such as Italy and Spain, with recent histories of terrible political violence. Part of the explanation lies in the big advances in genuine economic prosperity and welfare provision in the pre-crisis decades. As a result, the hardship today is nowhere near as bad as it was in the 1970s and 1980s, except perhaps in Greece. Another part of the answer is that time itself is a great healer and a crisis postponed, as the euro crisis has been, eventually becomes a crisis resolved.

In Italy, it appears that nothing significant has been done to resolve the euro crisis. Businesses are still strangled by credit restrictions and new taxes. Many of the reforms imposed by former Prime Minister Mario Monti are being reversed and the government is, as usual, on the brink of collapsing.

Despite all these problems, eppur si muove, as Galileo said. Italy’s economic statistics are gradually improving and the mood among Italians this summer is palpably better than a year ago. The huge IKEA store just north of Rome was thronging with customers, and the shopping mall it anchors — one of the biggest in Europe – was as busy as any I have seen in Britain or the United States. Even Italy’s notoriously decrepit infrastructure has improved impressively in the past two years, despite all the reported public spending cutbacks. After decades of delays, the Rome and Florence ring-roads have been completed; many miles of highways have been resurfaced with sound-barriers erected, and high-speed trains are racing along impressive new high-speed railways from Venice and Milan to Rome and Naples.

These signs of improvement do not mean that Italy’s era of stagnant living standards and economic underperformance is over. The problems that range from political chaos to the costs of euro membership have by no means been resolved. But it does seem that Italy has stabilized and found a way of living with the Eurozone – and this also seems to be true of Spain, Ireland and Portugal. Maybe even Greece.

Which brings me back to my encounter with Galileo. Despite all the unresolved problems, the world economy keeps revolving because civilized societies have an astonishing capacity to dodge problems, instead of properly solving them. This capacity is often under-estimated by ideologues and experts, who demand clear answers and tough, decisive actions, rather than “muddling through.”

History shows that muddling through is usually a successful solution and the odds are overwhelming against collapse (whatever “collapse” may mean). But should we see this social resilience as reassuring? Most economists and politicians now seem to believe that for countries such as Italy and much of Europe, the only alternative to outright “collapse” or radical reform is long-term decline. This sounds profoundly worrying, but what exactly does it mean?

As I rounded off my Italian holiday this week, I recalled a remark once made to me by Giulio Tremonti, the former Italian finance minister and long-time consigliere to Silvio Berlusconi. “I was often told at G7 meetings and European Councils, that Italy was in decline and that we had to do something about it,” he said. “My answer was that people have been telling Italy that it is in decline for 2,000 years — since the death of Julius Caesar in fact.Maybe they were right. Yet look at Italy today. After 2,000 years of decline, we still enjoy life, maybe more than any other nation!”

But apart from la Dolce Vita, what has Italy got to show for its centuries of decline and under-performance? Well, since the fall of the Roman empire, Italy has created the Catholic church, built the world’s most beautiful cities, developed modern scientific method, as well as painting and music, even invented banking and accounting – and then, of course, there’s cappuccino and pizza.

Crises come and go, but the world keeps moving.


Anatole Kaletsky is an award-winning journalist and financial economist who has written since 1976 for The Economist, the Financial Times and The Times of London before joining Reuters. His recent book, "Capitalism 4.0," about the reinvention of global capitalism after the 2008 crisis, was nominated for the BBC’s Samuel Johnson Prize, and has been translated into Chinese, Korean, German and Portuguese. Anatole is also chief economist of GaveKal Dragonomics, a Hong Kong-based group that provides investment analysis to 800 investment institutions around the world.