Ireland seems bailed out at least for the time being, while Spain continues to rebuff claims that it’s next on the crisis list.
Yet there’s an economy even larger than Spain’s that could the next Eurozone nation to fall into crisis:
The good news is that Italy, euroland’s third largest economy, is not like Greece or Ireland. No major housing bust, no major banking implosion, at least not yet. The bad news is that Italy is like Portugal, which also has so far escaped housing and banking problems of Greco-Irish proportions, but is growing so slowly that its tax revenues might fall short of covering its IOUs. The worse news is that Italy’s economy is almost half-again as large as Spain’s, and troubled Spain is a country deemed too big to fail, but which the euro zone can’t command sufficient resources to save.
From 1998 to 2008, German productivity increased 22%, France’s 18%, and Italy’s a mere 3%. If productivity growth is not increased, Italy’s economy will be unable to grow at faster than the 1% rate the government projects for this year and next. In which case, says the organisation for European Economic Co-operation, tax revenues will decline, and Italy will not be able to meet its deficit target.
If Italy experiences its own crisis, but is too large to be bailed out, then what would come next for the euro?