Nov. 8, 2011, 11:22 a.m. EST
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The only remarkable thing about Italy is that it has taken it so long to become the epicenter of the euro-zone’s crisis.
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True, Italian government debt has been relatively stable since it joined the euro, although at a very high level. Its total stock of outstanding government debt is 129% of gross domestic product today, compared with 126% back in 2000. Government spending has been fairly disciplined since it joined the euro. This year, the budget deficit is forecast to come in at only around 3.6% of GDP, which is modest by current global standards. The forecast is for a surplus by 2014 — and although a fresh recession and the soaring cost of its debts might derail those projections
True as well, Italy is a relatively wealthy country compared with Greece and Portugal. According to Eurostat figures, its GDP per capita is at 104% of the average for the whole of the EU, whereas Portugal is only at 78% of the average and Greece at 94%. Much of the north of Italy is as rich as anywhere in Europe — the North-West and North-East regions are at 126% and 124% of EU’s average GDP per capita, for example, which makes both of them richer than France or Germany as a whole, and richer than countries we think of as fairly successful, such as Denmark.
.Then again, Ireland is a wealthy country as well — and that didn’t stop it from having to be bailed out by the International Monetary Fund.
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The trouble is, Italy faces three big problems.
First, while government debt may have been fairly stable over the last decade — admittedly at fairly high levels — just about every other type of debt has exploded. Corporate debt has gone up from 96% to 128% of GDP between 2000 and 2010, according to figures published by the Bank of International Settlements. Personal debt is up from 30% to 53% of GDP over the same period. Overall debt has gone up from 252% of GDP to 310% since Italy joined the euro. It is a mistake to focus just on government debt. It is the money the country as a whole owes that really counts.
Next, Italy has stopped growing. It has been through four recessions since it joined the euro in 1999. Average growth has been just 0.6% from 2000-2010. Per capita GDP growth has been 0.1% over the whole of the first decade of the single currency — a statistically insignificant figure. And, remember, the global economy was booming through the first eight years of that decade. Just about everyone else in the world was getting richer while Italy stayed still. The decade to come is going to be a lot tougher. Given how badly Italy did in the good times, it will inevitably struggle in the bad. The chances are GDP will actually contract over the whole of the next 10 years. That is going to make it a lot harder to pay off all the debt.
Lastly, Italy has the worst demographics in the world. The United Nations projects that the population will fall to 41 million by 2050 from its current 51 million. Even worse, a healthy Mediterranean diet — lots of red wine and olive oil — means life expectancy is rising fast. Italian women now have the longest life expectancy in Europe at 83.2 years (perhaps because they have so few children), and the men are not far behind. As the years go forward, there are going to be lots of old people and not many young ones. That would put severe strain on the finances of any government. In a country that already has a debt crisis, and a generous pensions and welfare system, it is catastrophic.
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Italy is bust; it?s just a question of when - Matthew Lynn's London Eye - MarketWatch
