Italy Is Not an Economic Basket Case
At a time when Europe’s future, and even its financial present, has been called into question, the fact that the picture is in some ways gloomy does not mean that the malady is irreversible. Despite its very real problems, Italy is a case in point. In fact, the country is moving toward recovery.
Undeniably, Italy is plagued with government corruption and, given the stagnation of its population growth, an aging of the population. Back in 2009, at the height of this financial crisis, GDP in Italy had fallen by an incredible 6.8 percent. During the same period, other major economic indicators were terrible.
Yet today, the situation looks far better. According to Confindustria, there is a set of positive elements to take into consideration when it comes to the future of Italians. First and foremost: Italy’s GDP has been growing at a 0.30 percent rate during the last two years or so. It is more or less the same growth rate that Italy has experienced since 1981.
This is not surprising because, according to the World Bank, Italy is still a “high income” country. In Europe, it is the fourth largest in population with almost 61 million and, with a GDP of $2.11 trillion, it is the fourth-largest economy on the continent. With regards to GDP, Italy is considered the eighth richest country in the world (Brazil, with a population of roughly 200 hundred million, is the seventh).
Life expectancy at birth is 81 years: Italians live longer than Americans (78.9). GDP per capita in Italy is $35,084: higher than Spain, lower than France. At purchasing power parity, we are the 29th country in the world in terms of GDP per capita.
According to the last Confindustria survey on the state of Italian economy, exports have been rising by 6.7% and 5.1% respectively in 2010 and 2011; this would be thanks to the intensification of world trade (+17% since March 2010). Exports have always been our best bet: our politicians found out by the 1980s that devaluing the lira actually meant boosting foreign trade.
All and all, according to Confindustria, when you take into consideration the Italian economic situation as a whole, “the fear of markets appears to be exaggerated.” Consumption will most probably continue to grow in Italy (even though at a sluggish pace: +0.4% / 0.7%) during the next two or three quarters (this trend being in line with shaky labor market conditions and family income).
On the other hand, search the Web for Detlev Schlichter. The problem for Italy is not Italian… it is global. Everyone is playing the same deadly game, worldwide. It’s just that the dark stuff will hit the rotating appliance sooner in some states than in others.
“Unfortunately, though, at the same time public debt will continue to go up and it will reach 118.9% of Italy’s GDP by the end of 2011. It is a very high value, according to every standard, but do not forget that Europe as a whole has 80% of public debt, France has 81%, Germany 82% and the UK 80%.”
Which isn’t good for any of these countries, least of all Italy. But the biggest problem you are not addressing is what Italy, as well as the rest of Europe, will do if banks start to fail after Greece defaults on all of its bonds and loans? The problem may not be the amount of debt Italy has, the real problem may be if Italy is able to sustain major bank failures once Greece goes belly up? I’m not sure that Italy, not to mention Spain, Portugal, France, and Ireland, can do that. I also don’t think there is enough money in Europe to help all of the banks that are going to be effected by the collapse of Greece. That’s probably why Italy and Spain are the major danger signs in Europe right now. If they do go down because of the impending bank failures, they are going to take the rest of Europe down with them. And THAT is much cause for alarm.
Totally agree. Very hard to determine the true exposure of banks to Greek debt because there are too many variable financial instruments at play. That goes for both europe and USA. No doubt we will have empirical evidence within two years.
If Italy is not a basket case now, it will be soon enough, given that it has one of the world’s lowest fertility rates and has had it for a long time — it is 1.3, and has been under 1.5 for over 20 years, and is not getting any better.
Too many old people getting pensions at 55, too few young people paying for them.
This can’t last more than 10 years, tops.
What he said: The predictions of Italy’s downfall will come true if there aren’t any Italians. Italy, like Japan and Russia, are in a demographic death-spiral that might be too far along to reverse.
Two suggestions.
Start, now, to isolate bad debt by bundling it with performing debt. i.e. Greek debt held by Italian banks put together in a bundle with corporate securities that cover most or all of the potential loses. The packages then are self supporting. Cash flow is king. Italy might also consider subdividing big banks to avoid the TBTF myth.
Second, build now coal liquifaction plants (synfuel). Texas A&M University has refined the process to about 30$US per bbl. Three plants (North, South and Sicily) would provide jobs and start wearing away at the petroleum bind. Italian engineers are more than competent to refine and improve the process. The coal would come from the Saar and the UK. This would help Italy with its EU currency issues. A win-win.
Finally, I cannot believe that with oil just across the sea, that there are not frackable formations within Italy.
ta
The problem of Italy is the problem of all states, the size of government and the waste of wealth it cause.
Italy is less than a basket case because, without the interests of the debt, it has a financial surplus of around 4%. Another reason is the level of indebtedness of the private sector and of individuals is much lower than the level of indebtedness of the private sector and of the individuals in other states. The government could fail, the people is much more resilient.
The solution is the same that would work in the UK, US, and everywhere. Put the government out of the way for the working people and of businessmen. Reduce the taxation and the red tape on productive people, reduce even more the government expenses. Without the government interference (politics, unions, and others) the Italians (the northerns anyway) would be able to pay back the public debts and grow at China rates (and this would support affordable family creation).
If one disregards the interest on the debt and have a surplus, then by disregarding the debt itself there is no problem at all. Pain is coming and a lot of it. What exactly does government failing look like? To my mind it looks a lot like Greece. The people cannot be separated from the government. Much of Italy’s public debt is held by Italy’s banks, the same banks holding the people’s savings. Who will stand behind those banks if the government should default? The distinction between public and private becomes moot.
The truth comes out in the last few paragraphs. Debt getting ready to pass through 118% of GDP, and increasing at an increasing rate. Just how different is this from the problem in Greece? The problem is EURO’s! Italy is trapped by the EURO and devaluing the lira is not an option. What is Confindustria? If it is anything like the Congressional Budget Office, you are getting your data from an alternate universe!
Italy, despite the troubles, has a lot going for her. Italy has a lot of small manufacturing of very high quality in many fields of endeavour. I cannot begin to number the areas of Italian excellence. Italy’s big problem has always been her government. This has been so since the unification by Garibaldi. The Mussolini period was disastrous, to be sure, but the others have been rather problematic. Certain attitudes are endemic, some going back to the Romans. ‘Bunga-Bunga, despite his underage whores and all the rest, has possibly given Italy a half-way decent governance. Give Italy a chance, and she will come walking out of the darkest tunnel—much like Nino Manfredi at the end of ‘Bread and Chocolate’.
The problem is that like most of the rest of the West Italy has a class of people who want to make money moving money around instead of making things and selling them to people.
I must apologize, I could not be more precise about Confindustria. Anyways, the acronym stands for Confederation of the Italian Industries (http://www.confindustria.it/Conf2007/hpENG.nsf/hp?ReadForm). It is an extremely reliable source of info, even more accurate than ISTAT (Istituto Nazionale di Statistica) in certain cases. I also used data from the World Bank (http://data.worldbank.org/country) and the OECD (http://www.oecd.org/document/0,3746,en_2649_201185_46462759_1_1_1_1,00.html)
Socialism and the culture of death reaching it’s inevitable dead end.
Great comments on this article. Some folks apparently do get it.
Parts of Italy and the Italian economy are fine. Other parts not so much. The North, i.e. the Po plains, are in fairly good shape. Sure there are some over-leveraged banks and the lower end products (cheaper clothes/shoes) are being out competed on price by China but yes in general I agree this part of italy is fine. But it gets a lot worse as you go south. Organized crime, corruption, waste and nothing people elsewhere want beyond a few ruins/museums and some wine and mozzarella cheese. That part of Italy is about as healthy as Greece and would be bust now if it weren’t for the wealth transfers from the North or Italy and (via the EU) Germany.