Trader Talk

Venice sinks under the weight of high taxes, low growth

Piazza San Marco in Venice, Italy.
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Venice, the historic Renaissance Italian hub, is sinking in more ways than one.

The city's Osteria Do Mori is one of the oldest drinking establishments in the world. Founded in 1462, and said to be a favorite haunt of the legendary lover Giacomo Casanova, this tiny wine bar has been a center for Venetian gossip ever since. The gossip on the morning I visited, however, was decidedly gloomy.

A 30-something attorney who had grown up in this neighborhood just a stone's throw from the Rialto Bridge told me he had left his home town and moved to Stockholm. What was the problem?

"There is no work for a lawyer in Venice," the attorney said. "No work for anyone unless you are in the tourist business."

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A man standing next to him—a bartender—agreed. Aside from the lack of job opportunities, he bitterly complained about high taxes: "80 percent of my income goes to paying some kind of tax or another." Taxes, and the high price of everything, has dramatically cut the number of locals he sees.

It certainly is expensive here. Although my first visit was back in 1972 (when virtually everything was cheaper), prices have climbed notably in the last five years. The introduction of the euro in 1999 has made price hikes more acute.

You can see it in the bacaros, the many wine bars that dot the canals here: a small glass of local white wine could run as high as 3 euros or more (about $4). Throw in a second glass and a small plate of cicchetti (local tapas) for another $10 to $12, and a dip into the bar is now a $20 proposition. That can be a lot if you are a working in a local shop and used to stepping out for 15 minutes.

And these are the cheap places.

There's also the matter of the cost of housing. One woman working as a hotel receptionist told me that her 300-square foot apartment in a decidedly un-hip part of town was 800 euros a month (about $1,100). That is close to $40 a square foot a month, about the price per square foot for many New York apartments.

It gets even worse if you are a shopkeeper, bar owner, or restaurateur. The owner of one of the finest small restaurants in the city, with no more than 50 seats, told me his rent was 18,000 euros (about $25,000) a month. That's $800 a day in rent, or more than $15 a person, assuming the restaurant was full and there was only one seating.

And on the night we were here, there were only 10 other people in the place. And that is not unusual. A woman who ran a small cafe on he Grand Canal, a short walk from St. Mark, said her rent was 10,000 euros a month (almost $14,000, or $450 a day).

You have to sell an awful lot of espresso to cover $450 a day. Little wonder that rumors are rife about Chinese buying up shops. An outraged article published recently in the Venice Times highlighted how traditional Venetian mask makers were now being put out of business by cheap imports from China. Seems like all those beautiful Carnivale masks are not even made here any more.

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All of this stress might be bearable we're it not for one final fact: business is not great. It's not just the locals drinking less valpolicella (a local wine): to a person I was told that tourists are still coming, but they do not spend nearly as much as they used to. One bartender said business was off 50 percent in the past two years.

Little wonder that Venice, famously sinking, is now also famously shrinking: The population has gone from 120,000 in 1980, to less than 60,000 today.

Venice, of course, has unique issues, but in other ways it is a microcosm of what is happening in the rest of Italy (and indeed, in the whole of Europe, too): high prices, shrinking salaries, no room to advance, too many taxes, too much bureaucracy.

How to deal with all this stress? Some Venetians are dealing with it the way the lawyer I met in Do Mori is dealing with it: they are leaving. A new wave of Italians have abandoned the mother country, not as many as the Great Emigration from the 1890s to the 1920s (which brought my grandfather and grandmother here), but still a wave.

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Among those remaining—and they are still the majority—the most prevalent attitude is a certain fatalism, which has always been endemic to the Italian character but has come into sharper focus in recent years. There's a wonderful Italian word: menfreghista. Loosely translated, it means "a person who doesn't give a damn."

If you have menefreghismo, you live your life, you smoke your cigarettes, you drink your wine and you don't give a hoot about corrupt or inefficient politicians. Dean Martin had menefreghismo, in spades.

In this town, whose origin harks back 1,600 years to a group of frightened Roman citizens fleeing Atilla the Hun, and which has survived numerous outbreaks of disease and invasions by the likes of the Lombards, Byzantines, Austrians, and the Arabs, it's increasingly apparent there are only two choices.

You either leave, or develop your own sense of menefreghismo.

--By CNBC's Bob Pisani