- Italy’s debt 1900 billion versus GDP of around 1500
- Italy’s debt deficit at -4.6%
- Italy’s tax burden one of the highest in Europe at 42.8%
- At a 5% average refinancing rate Italy would have to pay close to 6% of the GDP in Interest only.
The next chapter of the European debt crisis is slowly taking shape. Italy’s debt is by any standard astronomical. At 1900billion euros it dwarfs Greece’s 350billion or Spain’s 650billion. Italy of course is a much bigger economy, its GDP stands at around 1500billion and it has so far avoided the worse effects of a deep recession. This however, may be about to change. Italy’s deficit is around -4.6% and the aim of the MOU presented by Berlusconi last week to the European leaders is to annihilate it by 2014.
This would be a very hard target to achieve. Italy contrary to Greece has one of the highest tax burdens of all European countries. At 43.5% it is one of the highest n Eurozone (see table). If the Italian government attempts to follow the footsteps of the Greek government and raises taxes to fill the state coffers it would surely be met with increasing non-compliance and possibly social unrest. The Greek government on the other hand did have that choice but it really messed it up by failing to catch tax evasion and instead it concentrated on indirect taxes (Taliban tax raids). This reinforced the feelings of injustice amongst Greeks.
Thus in Italy’s case the only realistic option is to cut spending, to start selling state assets and to downsize the public sector. This is not a change that can be implemented with visible results any time soon or one that can be easily swallowed by the Italian public.
Italy has to refinance 166billion in 2012 (120 Principal, 46 Interest) and 160 billion in 2013 (117 Principal, 43 Interest). Not accessing the markets is not an option that the EU can afford.
But there is another point with regards to Greece. If the so-called contagion/metastasis materialises then saving Greece becomes irrelevant. No longer is Greece the first line of defence for Europe. Now the focus would be on Italy and Greece can be left to lick its wounds either in or outside the Eurozone. In other words the spill over of the debt crisis into Italy signifies also the total loss of all the trump cards that Mr. Papandreou and his government were playing. This is something that most Greek politicians have not realised. They still think that Europe cannot afford to let them go. With Italy in crisis, the EU would have to get serious and if it means sacrificing Greece so do it. Greece would become the Lehman Brothers instead of Bear Stearns.
1965
|
1975
|
1985
|
1995
|
2000
|
2007
|
2008
|
2009 provisional
|
|
Australia
|
20.5
|
25.2
|
27.6
|
28.0
|
30.3
|
29.5
|
27.1
|
n.a.
|
Austria1
|
33.9
|
36.6
|
40.8
|
41.4
|
43.2
|
42.1
|
42.7
|
42.8
|
Belgium
|
31.1
|
39.5
|
44.3
|
43.5
|
44.7
|
43.8
|
44.2
|
43.2
|
Canada
|
25.7
|
32.0
|
32.5
|
35.6
|
35.6
|
33.0
|
32.3
|
31.1
|
Chile
|
19.0
|
19.4
|
24.0
|
22.5
|
18.2
|
|||
Czech Republic
|
37.6
|
35.3
|
37.3
|
36.0
|
34.8
|
|||
Denmark 1
|
30.0
|
38.4
|
46.1
|
48.8
|
49.4
|
49.0
|
48.2
|
48.2
|
Finland
|
30.4
|
36.6
|
39.8
|
45.7
|
47.2
|
43.0
|
43.1
|
43.1
|
France 1
|
34.1
|
35.4
|
42.8
|
42.9
|
44.4
|
43.5
|
43.2
|
41.9
|
Germany 2
|
31.6
|
34.3
|
36.1
|
37.2
|
37.2
|
36.0
|
37.0
|
37.0
|
Greece
|
17.8
|
19.4
|
25.5
|
28.9
|
34.0
|
32.3
|
32.6
|
29.4
|
Hungary
|
41.3
|
38.5
|
39.7
|
40.2
|
39.1
|
|||
Iceland
|
26.2
|
30.0
|
28.2
|
31.2
|
37.2
|
40.6
|
36.8
|
34.1
|
Ireland
|
24.9
|
28.8
|
34.7
|
32.5
|
31.3
|
30.9
|
28.8
|
27.8
|
Israel 3
|
37.0
|
36.8
|
36.3
|
33.8
|
31.4
|
|||
Italy
|
25.5
|
25.4
|
33.6
|
40.1
|
42.2
|
43.4
|
43.3
|
43.5
|
Japan
|
18.2
|
20.8
|
27.1
|
26.8
|
27.0
|
28.3
|
28.1
|
n.a.
|
Korea
|
14.9
|
16.1
|
20.0
|
22.6
|
26.5
|
26.5
|
25.6
|
|
Luxembourg
|
27.7
|
32.8
|
39.4
|
37.1
|
39.1
|
35.7
|
35.5
|
37.5
|
Mexico
|
15.5
|
15.2
|
16.9
|
17.9
|
21.0
|
17.5
|
||
Netherlands
|
32.8
|
40.7
|
42.4
|
41.5
|
39.6
|
38.7
|
39.1
|
n.a.
|
New Zealand
|
24.1
|
28.7
|
31.3
|
36.2
|
33.2
|
35.1
|
33.7
|
31.0
|
Norway
|
29.6
|
39.2
|
42.6
|
40.9
|
42.6
|
43.8
|
42.6
|
41.0
|
Poland
|
36.2
|
32.8
|
34.8
|
34.3
|
n.a.
|
|||
Portugal
|
15.9
|
19.1
|
24.5
|
30.9
|
32.8
|
35.2
|
35.2
|
n.a.
|
Slovak Republic
|
34.1
|
29.4
|
29.3
|
29.3
|
||||
Slovenia
|
39.2
|
37.5
|
37.8
|
37.2
|
37.9
|
|||
Spain 1
|
14.7
|
18.4
|
27.6
|
32.1
|
34.2
|
37.3
|
33.3
|
30.7
|
Sweden
|
33.4
|
41.3
|
47.4
|
47.5
|
51.4
|
47.4
|
46.3
|
46.4
|
Switzerland
|
17.5
|
23.9
|
25.5
|
27.7
|
30.0
|
28.9
|
29.1
|
30.3
|
Turkey
|
10.6
|
11.9
|
11.5
|
16.8
|
24.2
|
24.1
|
24.2
|
24.6
|
United Kingdom
|
30.4
|
34.9
|
37.0
|
34.0
|
36.4
|
36.2
|
35.7
|
34.3
|
United States
|
24.7
|
25.6
|
25.6
|
27.8
|
29.5
|
27.9
|
26.1
|
24.0
|
