The Italian economy enters the unknown

Monday – August 12, 2019
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Europe is deeply concerned that the crisis will spread to other countries if Italy reaches the default stage (Reuters)

London: Mutlaq Munir

Italy's public debt has exceeded 134% of production and the country is plunged into uncertainty as to how to get out of it to prepare the 2020 budget.
For months, economic observers in Paris, Frankfurt and Brussels have not hidden their worries, which caused fear of a new crisis in the euro area, as long as the Italian political clbad would not be able to find appropriate solutions to the crisis in the country in general and the rise of the public debt in particular. This debt, relative to production, in absolute terms, is the highest in the European Union, with 2,350 billion euros, and much more than the Greek debt of 337 billion euros.
Sources at the European Commission in Brussels confirm that if Italy reaches the point of default, no one today knows whether the European measures already taken in such cases can work in the case of l & # 39; Italy, and no one in Brussels today can say that the infection will not be pbaded on to other countries, such as when the sovereign debt crisis in Europe erupted in 2011.
Fears are further exacerbated nearly two months after the dissolution of the populist coalition led by the government. A very worrying indicator for the European Commission and investors is that the difference between German and Italian 10-year bond yields has increased in recent days, from 200 basis points to 235 basis points. This difference is used as a "thermometer", but it remains relatively far from level 300, considered a "potentially explosive risk" reached last October during the serious crisis that has worsened between Rome and Brussels. Conditions are now "favorable" to the widening of this difference with the sharp fluctuations of the markets due to the intensification of the trade war between the United States and China.
The focus is now on the outcome of the political crisis, particularly the possibility of holding early general elections and the formation of a new government that technocrats ask Brussels to complete. of the 2020 draft budget to be presented to the Commission next October, especially since the debate between Rome and Brussels has resumed to take the dimensions of a "crisis" when it becomes clear that Italy Not ready to commit to a deficit of 2% of production … But observers minimize the risk because the rest required to meet this ratio has been reduced to 20 billion euros only.
For Brussels, whatever the outcome of the next elections, the next government should increase VAT revenues from January to increase the collection of 23 billion euros, but the ruling coalition does not think that this increase will affect significantly negative consumption of 0.5%. Output increased 0.3%, with growth reaching a "stable" level close to zero in the second quarter, after recording 0.1% in the first quarter and negative 0.1% in the last two quarters of 2018 , and economists expect the recession to continue and disfigure itself while remaining as of 2019.
The Italian economy is also affected by the trade war and by the German car industry, because the industrial fabric of the north of the country, very open to export, is organically linked to this vital sector of the country. # 39; Germany. These emerging issues add to a long-standing structural problem that is now difficult to solve together, according to various sources.
The Italian economic model was successful in the 1970s due to the interdependent activity of SMEs. This model began to decline slowly since the 1980s and culminated with China's WTO accession in 2001, exacerbating the problem that SMEs were not updating their tools properly. of production, as well as the impact of a rich and divided North-South system. A poor bureaucracy and the decline of the rule of law due to the low turnover of judicial mechanisms, there is also an aging population factor and the migration of skilled young people.
As a result, as the economy can not grow, public debt becomes a heavy burden, but this debt is mainly borne by individuals and home-based businesses, which is relatively rebaduring. What is even more rebaduring is that the ECB has relaunched its bond buying program, limiting the negative effects up to … However, there is a risk of threats occasional exit from the European Union or monetary union, a threat evoked by populists in power under the pretext of governing. The main fear in Brussels is to allow Italians to cling to their economic destiny, as such a new break puts the EU in a new mess that threatens it all the time.

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