The Sad Story Of How Italy Got To Be Such A Wreck

italy kills the world

As terror over the Greek debt crisis cools momentarily, everyone’s suddenly paying attention to Italy.

Its market is diving, people are dumping Italian banks, and yields are shooting up.

Italy’s economy is the fourth-largest in the European Union, and its debt burden — wavering at about $2.2 trillion — shows no signs of subsiding, regardless of harsh austerity cuts.

Italy’s economy has deep-seated structural problems that are not going to go away by taking away the pocket book. Indeed, they may even get worse.

Too much emphasis on family means lots of small, privately owned businesses and few large, publicly owned companies.

The Borsa Italiana - Italy's main exchange - consists of only 331 companies.


This means that not a lot of women participate in the workforce.

Only 51.6% of Italian women participate in the workforce. (That's the third-lowest rate among OECD countries.)

Source: OECD Statistics

And most of the largest companies are formerly state-owned banks and utilities.

Italy has little industrial presence in chemicals, pharmaceuticals, computers, and even food processing.

Source: The Economist

Powerful entrepreneurial guilds raise barriers to entry and stifle competition.

Even baby sitters and cab drivers have such associations.

Source: The New York Times

And because of guild rules, it's difficult to fire people. The solution? Don't hire!

Full-time workers in firms of more than 18 staff members essentially get tenure.

Source: The New York Times

So you've got incredibly low labour mobility.

In Italy, nobody moves! Not even between counties.

Source: European Commission

And -- because they can't get a job and move up the ladder -- immigrants aren't replacing Italy's ageing population.

No wonder all the Tunisians are going to France.

Source: European Comission

The government is also huge...

Public spending accounted for 51.7% of GDP in 2009.

Source: OECD Statistics

Particularly when Prime Minister Berlusconi makes a habit of appointing showgirls to powerful posts.

He tapped Mara Carfagna to be the Minister For Equal Opportunity and a member of his cabinet.

Add that to a notoriously slow judicial system...

The first round of the Amanda Knox trial never met more than three times per week. Because a lawyer for the appeal is a member of Parliament, the newest round only meets on Saturday mornings.

Source: Rolling Stone

And the fact that it's harder to do business in Italy than in any other OECD country (OK, well except Greece)...

Italy ranks #80 on the World Bank's list, meaning it's more difficult to do business in Italy than in Namibia.


And high energy costs...

It is more expensive to purchase electricity as an industrial producer in Italy than it is in any other EU state.


Plus an under-developed tourism industry...

In 1980, Italy was Europe's top tourist destination, with 9% market share. Now it can boast just 5% -- on par with China -- behind Spain and France.

Source: ITALY Magazine

And the fact that no one pays taxes...

Tax evasion costs the Italian government an estimated €100 billion per year in revenues.

Source: The Economist

And you've got a SITUATION.

Mike would know.

Essentially, Italy's just not growing anymore.

Italy's annual growth rate has been under 4% since 1988.

Source: World Bank

But will Italy break the euro?

Italy's gross public sector debt amounted to about 120% of its GDP.

But as much as 65% of this debt is owned by Italian institutions and individuals.

Source: Financial Times

And the government could sell off some of its assets to pay down its debt.

Thinktank Privatization Barometer suggested that Italy's government could raise up to €30 billion by privatizing three of its state-owned enterprises. This move doesn't sound likely, though.

But youth unemployment is through the roof...

28.8% of 15-24 year-olds were unemployed in Q1.

Source: Italian National Institute of Statistics

Stocks of the five largest Italian banks are in free fall...

Their stocks have lost 27% on average since the beginning of the year.

Source: The Wall Street Journal

And political turmoil may jeopardize austerity measures.

Though Berlusconi said he will step down in 2013, he is currently caught up in a sex scandal, might be guilty of tax fraud, and is trying to weather increasing conflict with both his coalition ally and his finance minister.

And two recent negative outlooks by S&P's and Moody's suggest that Italy is headed for a downgrade.

Moody's is currently reevaluating Italy's Aa2 rating.

Source: Moody's

Any way you slice it, Italy's economy is a wreck.

A bona fide disaster.

But how about the rest of Europe?

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