Research (Conseq)
Markets  |  December 19, 2012 16:19:58

Italy's debt is at a record high - Italy is another failing of the southern eurozone countries? Italian debt surpassed in late October frontier € 2 trillion, more than 30,000 euros per head including infants. This debt amounts to about 126% of GDP, which is higher than the eurozone average debt (90% of GDP). In relation to the gross domestic product, Italy is the second nejzadluženějším the euro zone after Greece, which is forced to draw on assistance from international creditors to avoid bankruptcy. Italy, however, can not be compared with Greece, because its economy is completely different and it is used with high debt to live. In 1995, the proportion of debt to GDP to 120%, and by 2007, the government managed to reduce it to 103%. Due to the financial crisis has again raised to its original amount.Italy if they do not take into account the interest costs on the national debt reaches the budget surplus. I budget deficit of 4.6% of GDP for the year 2011 is among the lowest in Europe. This year, the deficit should come in Maastricht three percent. If we compare the Italy with France, we come to the conclusion that Italy is indeed indebted, but the pace of growth in debt is significantly lower. Italy also owns a large estate consisting of a number of real estate companies that can sell. The current account deficit, representing the total inflow of wealth from abroad, in the third quarter of this year, 1.5% of GDP, a result that is better than in France.Italian debt grew between late 2007 and 2011, from 103.3% to 120.7% of GDP, ie. French slower than debt (from 64.2% to 86%) and British debt (from 44.2% to 85%). However, both Britain and France are seen as safe havens, judging from the yield to maturity on the bonds.  

Also, the country's economy on the sweet life is not bad. Italian unemployment at less than half the Greek (11% versus 25%).

Italy's problem is not only the large number in the box the debt to GDP. The problem is the same as in other European countries: the rigid labor market and unfavorable business environment. Italy, although advanced rich country in the ranking of countries by economic freedom placed to the 92nd point between the Honduras and Azerbaijan. Disciplines were the weakest labor market flexibility and the size of the state. Declares reallocate half of what they produce. Sacking unproductive workers from working in Italy as easy and short as overseas travel Amerigo Vespucci. The great problem is the difference between the industrial North and the agrarian South.

Mario Monti made ??some unpopular steps in the right direction. Their usefulness can be estimated by forward volume trade union resistance, which precedes their validity. The liberalization of taxis and other sectors is a step entirely beneficial. And Monti are positive steps with regard to the labor market, unfortunately, were quite unfinished end. Also increased tax collection.

Italy has already done some good reform steps, it is necessary to remove barriers to business in the form of a number of restrictive laws and continued steps in the liberalization of the labor market. A potential problem could be the former Prime Minister Berlusconi, whose return would lead to populist policies. The sad fact is that Berlusconi's government was one of the most stable in the last few years. Previously, the average time premiership was not enough even to eat pizza.

Leaving the eurozone would help Italy to devalue the currency, increase the competitiveness of Italian products and Italian to help kick-start the economy. At stake is the huge political capital invested in it by European politicians. Italy is but in a surprisingly good position to negotiate as European leaders will be willing to make major concessions that Italy should give enough time to perform other necessary reforms. It is interesting that the total debt of households, businesses and governments in 265% of GDP is the lowest of the G7 countries.


Vojtech Iron,

Portfolio Manager

Conseq Investment Management, Inc.



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