REMINDER: This Is The Story Of Why Italy's Getting Crushed

caravaggio religion italian painting man sad scared italy 2

Photo: Wikimedia Commons

After the brief market jubilation over Wednesday’s EU summit, everyone is starting to remember that the eurozone’s prognosis is actually not so great.And the pressure’s mounting again on Italy.

The cost of borrowing is soaring for Italy today.  During a bond auction this morning, 10-year government bonds sold at yields north of 6%. These were the highest yields for an auction since the country joined the euro.

With the fourth-largest economy in the European Union, Italy’s $2.2 trillion debt burden has investors running scared, regardless of austerity cuts.

Here’s why forecasts for Italy are grim.

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 babysitters 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 Commission

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 was a member of Parliament, the second round normally met 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 #87 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. ...

27.9% of youths were unemployed in 2010.

Source: OECD

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, is trying to weather increasing conflict with both his coalition ally and his finance minister, and just says lots of stupid things.

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

Italy has recently been downgraded by Fitch, Moody's, and Standard & Poor's.

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

A bona fide disaster.

Now, Berlusconi's not making any progress.

French President Nicolas Sarkozy and German Chancellor Angela Merkel took Italian PM Silvio Berlusconi aside for a little chat before Sunday's summit. According to a source cited by Reuters, the two leaders felt it necessary to impress upon the bawdy PM 'the urgent necessity of credible and concrete reform steps in euro area states.'

Merkel later told reporters that if Italy's debt remains at 120% of its GDP, 'then it won't matter how high the protective wall is because it won't help win back the markets' confidence.'

EU leaders seem to accept Berlusconi's commitments to growth, but that's not saying much.

He wrote a letter to EU leaders talking about his commitment to debt reduction and growth, but it wasn't that substantive.

Plus, he's not exactly known for his honesty.

So bond yields are hitting records, and everyone's freaking out.

But not all countries struggling with debt are doing such a bad job.

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