Facing the same path as Greece, Italians unfazed by talk of crisis
MILAN — As Greece wins at least temporary respite from its debt troubles, will Italy be the next to face a crisis?
The chronically underachieving nation is saddled with an astonishing level of debt, no real prospect for growth, and a leader mired in scandal.
True to form, Italians, by reputation prone to living in the moment, do not seem too concerned: They have high levels of savings, tourism, iconic brands, and a habit of muddling through.
As Greece struggles to extricate itself from its stunning troubles, Italy is in the sights of the world’s euro-skeptics with good reason. Public debt is at a Greece-level 115 percent of GDP, and the $1.7 trillion economy contracted by 5 percent last year — among the biggest drops in the euro zone — and is expected to grow only slightly this year.
But Italian officials — backed by economists — insist that the country’s high level of private savings, experience dealing with deficits, and prudent fiscal management in the recession have made it resilient.
Economists and investors are debating whether the ‘i’ in PIGS — the unkind moniker used to single out the sluggish economies and big deficits of Portugal, Italy, Greece, and Spain — really stands for struggling Ireland, not Italy. Some propose extending the acronym to PIIGS. But many Italians take the attitude: If you have a pig, make prosciutto.
Thus far the markets — which turned so savagely on Greece in recent months — appear to agree.
Ratings agency Fitch has indicated that Italy’s country’s AA- rating is stable. One result of this: although Italy shares some of Greece’s afflictions — corruption in addition to the debt and slow growth — its borrowing costs are not as high.
And Italy’s debt is of longer maturity and its spreads, or interest rate difference, over benchmark German debt are smaller than for Greece.
People seem sanguine about problems that might agitate a society with less perspective — or cynicism: a widening corruption scandal involving contracts for the G-8 summits; rigging of soccer games; the investigations targeting Premier Silvio Berlusconi for allegations that he has used his influence on RAI state television’s political coverage.
And when the problems do hit home, Italians tend to rely heavily on their families, who, thanks to Italy’s postwar economic rebirth, have so far been able to provide very tangible cushions against more recent trends of stodgy growth, low wages, and uncertain employment.
But Italians’ calmness might soon be severely tested by masked vulnerabilities.
Companies large and small have been taking advantage of Italy’s unique form of temporary layoffs at a maximum 80 percent pay from a government-industry fund, allowing companies to halt production during slumping demand, while maintaining workers’ ties to the company.
That masks unemployment, and so far the programs have kept Italy’s unemployment rate to a relatively stable 8.2 percent, and prevented internal demand from collapsing. Now, some 18 months into the crisis, the schemes, which can be used only for 52 weeks in any two-year period — are set to expire.