Sunday, 2 May 2010

Wondering About the Greek Syndrome

(larskflem, Insert Coin)

[Edoardo Montenegro, Turin] - On April 24th 2010 Giulio Tremonti, the Italian Minister of Finance, expressed his satisfaction since the IMF recognized Italian public debt being at the same stage of that of Germany (1).
Actually if we look at the last IMF paper on Italy we realize that "The high private savings rate, low private indebtedness, and the resilience of the financial sector, are important elements of strength. However, the high level of public debt and the disappointing growth performance could make Italy vulnerable to external shocks" (2).

The budget deficit deteriorated to 5.5% of GPD in 2009 while, as Tito Boeri outlined, if Italy does not grow in 2015 the public debt will be 125% of GDP: the current level of Greek debt-to-GDP ratio (3).

This calls both for reforms aimed at boosting the economy and for a fiscal consolidation programme. Recalling that Italian GDP per capita fell to the levels of 1999, Vincenzo Visco has no doubts in foreseeing that - devaluation not being an easy option - deficits within the Euro zone will led to deflationist policies: cutting expenditures, increasing taxes and nominal wage reductions (4).

The real effort to save Southern European countries might be huge: €90 billions for Greece, €40 billions for Portugal and €350 billions for Spain (5). Wolfang Munchau is right in saying that "What we are seeing here is the equivalent of the US subprime crisis" (6). If speculators won the game, Italy might sooner or later join the party (7).

Nevertheless, here is the problem: where will Italy find the funds needed to tidy up its counts? With the tax burden weighing disproportionally on salaried and retired workers (8), tax dodging reaching €200 billions a year (9) and the Northern League claiming for fiscal federalism (10) the job will not be easy.


(1) "Tremonti: Italia come Germania e meglio degli Usa. 
'Merito del governo, ora non bisogna mollare'" (, April 24th 2010).

(2) "Italy: 2010 Article IV Consultation Concluding Statement of the Mission" (, March 30th 2010).

(3) Tito Boeri, "L'euro diventa scudo di vetro" (, April 27th 2010). Tito Boeri is professor of economics at Bocconi University and the founder of the economic policy watchdog website

(4) Vincenzo Visco, "Stiamo su una polveriera pronta ad esplodere" (, April 28th 2010). Vincenzo Visco was in charge as Minister of Finance for the Center-Left coalition from 1996 to 2001 and from 2006 to 2008.

(5) These data are suggested by Piero Ghezzi, economist at Barclays Capital, on Landon Thomas Jr., "Beyond Greece, greater dangers loom", International Herald Tribune, April 28th 2010, page 13.

(6) Wolfgang Munchau, "Greece is Europe's very own subprime crisis" (, April 25th 2010).

(7) Massimo Giannini, "Una folle partita a poker" (, April 24th 2010).

(8) "Italy: 2010 Article IV Consultation Concluding Statement of the Mission" (, March 30th 2010).

(9) Roberto Petrini, "200 miliardi sottratti al fisco. Le Finanze: 'Un problema enorme'" (, February 19th 2009).

(10) "Bossi: 'Non vogliamo il voto, ma solo fare il federalismo fiscale'" (, April 28th 2010).

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