Saxo Bank (Saxo Bank)
Macroeconomics  |  March 01, 2013 10:35:14

The prospects for the Italian economy so bad?


Italians last weekend rejected austerity plan Prescribing Mario Monti and local elections eventually led to a political vacuum. Will not discuss the resulting ratio of seats in the Senate and Parliament because it already did for me many analysts. Instead, focus on immediate reaction index of the Milan Stock Exchange FTSE MIB, which after the election on Tuesday morning failed by almost 5 percent. What do Italy may take a political vacuum that prevailed 535 days in Belgium? And also look at how the Italian economy is compared with other euro area countries.

Belgium without a government led well. And remember the era of Bill Clinton?

A certain irony of history is that the political vacuum because of the absence of government often led to the fact that no difference, and the economy grew. During the era of Bill Clinton reduced the political situation in the United States, the Clinton administration's ability to implement reforms. Bureaucracy and the emergence of new legislation and were in limbo.And the result? The slow economic growth (of course it had many other reasons) and a surplus budget. So why panic Italian election result when crystal clear that there is no majority, which would be able to remove the reforms introduced Monti?

Another interesting story is anarchy in Belgium for a period of 535 days, which ended in December 2011. The result was better than expected economic growth and overall better performance in comparison with comparable economies. And even better development deficits than previously expected. Even if newspapers were full of articles about the catastrophic vacuum in the country of the European Union. The irony is that it really did not matter.

Taking into account what we know, and add on top of Bayesian statistics, the probability of leaving Italy from the euro area would not change. And even that Italian elections are not really a disaster for the eurozone. It's just a classic overreaction, which we could see several times in the past. Including the time it was anarchy in Belgium, and Greek elections last year. Before there are any more substantial information, I recommend you keep a calm head.

Italy is close to a balanced budget. The real risk is the lack of growth measures

According to economic estimates, Bloomberg, the development of the euro area, Italy closer to a balanced budget. Italy in the area of fiscal responsibility doing (see chart below). On the contrary, the problem is much bigger Spain. Italy, of course, could play hardball in measures to support the economy.


But not everything is so rosy in Italy. The biggest problem of the country (as you can see in the graph below) is that the economy is not growing. Italian nominal GDP since the beginning of 2008, lower than the five-year interest rate. And even more interesting is that the lack of growth in the economy occurred in the period of loose monetary policy and massively increasing the national debt. It is expected that this year stabilizing the ratio of debt to GDP. But it will be useless when the Italian economy will not start again.


Peter Garnry, equity analyst at Saxo Bank

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