Italy hopes to leave austerity behind

After a rather lengthy post on evaluating EU fiscal rules, a more immediate and simple political criticism of the EU’s general austerity policies from Mr Bersani of the Italian Democrats (Pd). The new Italian political leader has argued: “We must leave the austerity cage,” “A change of course is absolutely necessary given that five years …

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Italian Economic Decline

In the past 20 years, the Italian economy has stagnated compared to its main international competitors. Using different measures, such as labour productivity and relative GDP growth – Italy has fallen significantly behind. Despite low budget deficits (and primary surpluses) Italy is facing high bond yields and crippling interest payments. These high bond yields are in response to both the high levels of debt – but also the continued economic weakness.

Italian Productivity

italian productivity

Italian productivity relative to the UK. In the 1990s and 2000s, Italian output per workers has fallen behind it’s main competitors. It’s a similar story if we compare Italian productivity to France or Germany.

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Italian Debt Crisis

Italy has struggled to reduce national debt as a % of GDP since government debt has risen to over 100% of GDP in the late 1980s

National Debt Italy

  • Italy has the second highest public sector debt in Europe, after Greece. The IMF predict public sector debt of 123.4 % of GDP in 2012.
  • By 2013, Italian national debt is forecast to 123.8%

italy debt

 

Historical Italian National Debt

italian-debt

Source: Debt and Growth in G7 (up until 1970s, Italian debt was below 50% of GDP. Source: Krugman)

Italian Budget Deficit

Despite the large total debt, Italy has a relatively low budget deficit as % of GDP.

italy-deficit
Italian Deficit. Source: ECB

The Estimated budget deficits for 2012 and 2013 have been revised. The IMF predict that the deficit will be 2.4% of GDP in 2012, above the government’s own target of 1.6% (Reuters)

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