These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:
Ousting Silvio Berlusconi won’t make Italy’s fiscal mess any easier–with or without him, its debt is impossible, and Italy is headed for default.
Italy’s problems are fundamentally different than some other troubled countries, such as Greece. Like others, its social benefits are too generous but substantially curbing them won’t bring its books into balance. It is simply too late.
Italy’s budget deficit is about 3.6% of GDP–less than half of the U.S. gap, but its total debt, amassed over many years, is 130%. That is an amount well above what economists consider manageable even for a country, like the United States, that can print money, and it is even worse for one like Italy without its own currency.
Although the final act of the Berlusconi government was to craft austerity measures that will lower the deficit to less than 2% of GDP, or about EUR25 billion, it must borrow in 2012 EUR300 billion–a massive 19% of GDP–in private capital markets to repay maturing debt. Italy is simply not growing fast enough in a Europe crippled by crises in Ireland, Greece, Spain, and Portugal for private investors to take that bet. Continue reading…
