Several things that many people seems to ignore about Italy:
1) A founding member of the european community.
2) A net EU net payer (unlike the other “PIIGS”). They pay net 5 billion euros to Brussels every year. In a period of 6 years, each italian pays net 780 euros to Brussels (each frenchman pays net 800 euros; each german pays 1200).
3) The second european exporter of manufactured goods (excluding energy and raw materials), ahead of France and UK and only behind Germany. The province of Turin exports more than Greece.
4) Unemployment rate of 5% in the centre and northern regions.
5) Their international investment net debtor position is around 25% of GDP. Much better than the 90-100% in Greece. Portugal, Spain and Ireland.
6) Private debt is sustainable. The public debt is an old issue: it´s above 100% of GDP since the 1980s. A consequence of many years of consecutive budget deficits around 10%, from 1981 to 1993 (sounds familiar??)
7) There are no objective arguments to explain this brutal speculative attack against Italy. Other than the weakness of the government and distrust on Silvio Berlusconi. Once president Napolitano appoints a technical government led by Mario Monti (endorsed by Brussels and Germany) the italian risk will decrease drastically. It´s a matter of 10 days.
You make excellent points, and I hope that your conclusion about a technocrat government appointed by President Naplitano is correct.
Unfortunately, logic doesn’t always move markets. Quite often, it’s emotion based. Even though I didn’t always agree with former Fed chairman Greenspan, I do agree with his observation about “irrational exuberance.”
It works both ways; in this case, hysteria. There’s the market’s perception (and cultural stereotype) of typical post WW2 Italian politics, i.e., bumbling, corrupt, fractious and inept.
There is a significant divide between Northern/Central Italy and the South. The North/Central regions are actually doing well; it’s the South that’s the overall drain on the rest of the country.
Do you not think Italian bondholders watching Greece bondholders being forced to agree to take a 50% haircut would have a significant risk of exposure to a similar fate on Italy’s $2.6 trillion debt? I would think a $1.3 trillion haircut exposure would make me want a much higher bond rate yield to entice me enough to buy Italian debt, JMO.
Well cash flow doesn’t lie, they either are deficit spending or they are not. And if they are not, can they and will they increase tax revenues to cover the deficit? Or reduce spending for the same result?
I’m doubtful.
FWIW, thanks for pointing out that the northern area of Italy is like the red states area of USA. Productive and hard working. Southern part is the problem from what I can recall.