Академический Документы
Профессиональный Документы
Культура Документы
the Eurozone
A M E R I C A N E N T E R P R I S E I N S T I T U T E
Executive Summary
1
Italian Risks to the Eurozone
2
ITALIAN RISKS TO THE EUROZONE DESMOND LACHMAN AND RYAN NABIL
Figure 1. Divergent Trends in Economic Growth (GDP per Capita, Constant USD)
1.25
Germany
United States
1.20
United Kingdom
1.15
France
Spain
1.10
1.05
1.00
Italy
0.95
0.90
Q2
Q3
Q4
Q2
Q3
Q4
Q2
Q3
Q4
Q2
Q3
Q4
Q2
Q3
Q4
Q2
Q3
Q4
Q2
Q3
Q4
Q2
Q3
Q4
Q2
Q3
Q4
Q2
Q3
Q4
Q2
Q3
Q4
Q2
Q3
Q4
Q2
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Organisation for Economic Co-operation and Development, “Quarterly Growth Rates of Real GDP, Change over Previous Quar-
ter,” https://stats.oecd.org/index.aspx?queryid=350#.
160%
Figure 2. Italy’s Increasing Uncompetitiveness (Quarterly Unit Labor Costs)
Italy
140%
France
130%
Spain
United States
120% Germany
110 %
100%
90%
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Organisation for Economic Co-operation and Development, “Unit Labour Costs,” https://data.oecd.org/lprdty/unit-labour-
costs.htm.
3
ITALIAN RISKS TO THE EUROZONE DESMOND LACHMAN AND RYAN NABIL
Figure53. Net Government Interest Costs (Net Debt Interest Payments, % of GDP)
2
Percentage of GDP
–1
–2
–3
Un wit e n
ly
Hu ce
Po y
er e
l
Es k
Eu te s
C m
Ze d s
lO a
Au a
ia
G y
m a
ep a
Ice ry
an
Re a l
d
Ki and
d
Be ia
N d
he g
S w in
d
d
nia
De lic
Sl lic
D
it e om
ae
e
xe ore
ar
c
d
ali
an
n
It a
lan
lan
lan
n
a
et ur
iu
en
s tr
EC
ak ug
a
w
ar
e
an
S ed
Jap
ew lan
ub
b
a
Is r
ng
a
la
ala
nm
to
Sp
s tr
lg
N bo
Un n gd
m
re
pu
l
or
e c an
St
ov
it e ze r
Ire
Fin
ov P ort
ro
Fr
r
Au
d
G
ta
hR
To
d
Lu
N
Cz
Sl
Source: Organisation for Economic Co-operation and Development, “Economic Outlook Annex Tables,” http://www.oecd.org/
economy/outlook/economic-outlook-annex-tables.htm.
Minister Silvio Berlusconi has proposed in the past,5 vulnerable to a change in the global economic envi-
would almost certainly raise the government’s bor- ronment for two basic reasons. The first is that Italy
rowing costs, which already rank among the highest has made practically no progress in reducing its pub-
in Europe (Figure 3). A further increase in borrowing lic debt mountain. The second is that it has failed to
costs would certainly encourage deposits to leave Ita- improve the parlous state of its banking system.
ly’s shaky banks. That in turn could very well trigger As an indication of Italy’s public debt problem,
an Italian government debt default, which would have the country’s public debt amounted to more than
major consequences not only for the Italian bank- €2.2 trillion in 2016 ($2.7 trillion), making it the
ing system but also for the eurozone as a whole. This world’s third-largest government bond market.6
would seem to leave the country with little alternative Meanwhile, Italy’s public debt-to-GDP ratio has
but to undertake major economic reforms to substan- risen to 134.7 percent,7 which is the eurozone’s
tially improve its productivity performance, which is second-highest such ratio after Greece (Figure
a necessary condition to get the euro to work for Italy. 4). That the average maturity of this debt is only
around seven years heightens Italy’s vulnerability
to a change in global financial market conditions.8
Two Major Economic Vulnerabilities This means that higher market interest rates would
feed through relatively quickly to the country’s pub-
Against the backdrop of the country’s poor economic lic finances. It also means that the country’s annual
growth performance, the Italian economy remains gross government borrowing needs—at more than
4
ITALIAN RISKS TO THE EUROZONE DESMOND LACHMAN AND RYAN NABIL
160
140
120
Percentage
100
80
60
40
20
1861
1866
1871
1876
1881
1886
1891
1896
1901
1906
1911
1916
1921
1926
1931
1936
1941
1946
1951
1956
1961
1966
1971
1976
1981
1986
1991
1996
2001
2006
2011
2016
Source: Francese Maura and Angelo Pace, “Il debito pubblico italiano dall’Unità a oggi. Una ricostruzione della serie storica,”
Banca d’Italia, 2008; and Eurostat, “Government Finance Statistics (EDP and ESA 2010),” http://ec.europa.eu/eurostat/web/
government-finance-statistics/data/main-tables.
5
ITALIAN RISKS TO THE EUROZONE DESMOND LACHMAN AND RYAN NABIL
Figure 5. Opinion Polls Show the Five Star Movement Is the Leading Party
50
45
40
35
30
25
20
15
10
0
April 8 April 14
Five Star Movement Democratic Party
Forza Italia League
Free and Equal Party/Former Left-Leaning Coalitions Brothers of Italy
Democratic Party, which is the country’s only main commitment to economic reform and its continued
pro-European political party, has slumped to under euro membership.
25 percent of the vote. Meanwhile, the populist Five The commitment of the next Italian government to
Star Party, which is hardly known for its economic the euro is likely to be more tenuous than was that of
reform or pro-European credentials, has now pulled the previous government. This is especially the case
ahead of the Democratic Party in the polls (Figure 5 considering that only 45 percent of Italians believe the
and Appendix A).11 euro is a good thing for their country, comprising the
The most likely political scenario is that the lowest rate of approval in any EU country (Figure 6).12
March 2018 parliamentary election will produce a Berlusconi’s Forza Italia keeps talking about the need
weak Italian coalition government comprised of for a parallel currency, while the Northern League is
strange bedfellows incapable of delivering the eco- even more robust in its opposition to the euro. For its
nomic reforms that the country so desperately part, the Five Star Movement has recently toned down
needs. A potential center-right coalition comprised its rhetoric on discontinuing Italy’s euro membership.
of Forza Italia, the Northern League, and Brothers of However, judging by its past performance, one cannot
Italy could achieve a parliamentary majority. How- exclude the Five Star Movement from switching back
ever, one cannot exclude the possibility that the Five to its anti-euro position following the election.
Star Movement will find the way to form a coalition Beyond raising questions about Italy’s European
government. If that were to occur, it is bound to commitment, a new coalition government could cast
raise serious questions in the markets about Italy’s doubts on the country’s commitment to budgetary
6
ITALIAN RISKS TO THE EUROZONE DESMOND LACHMAN AND RYAN NABIL
80
75
70
65
60
Percentage
55
50
45
40
35
30
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
discipline. Particularly disturbing is the fact that the purchases and intimated that it might end such bond
Northern League, Brothers of Italy, and the Free and buying by September 2018.
Equal Alliance all want to introduce a more generous
pension system for Italians. Meanwhile Forza Italia
and the Five Star Movement want to introduce uni- Italy Is Not Greece
versal income support for the poor. At a time when
Italy’s debt-to-GDP ratio is the second highest in A struggling Italian economy could threaten the
the eurozone, the last thing Italy needs is a further euro because of its size. With Italy being around
increase in its budget deficit and public debt. 10 times the size of the Greek economy and having
These economic policies, along with uncertainties the eurozone’s third-largest economy, it is difficult to
about Italy’s future commitment to the euro, could imagine that the euro could survive in anything like
very well raise investors’ doubts as to the country’s its present form if for any reason Italy were forced out
ability to stay the course. This would be particularly of the euro.13
the case should global liquidity conditions tighten as Similarly, since Italy’s economy is significantly
the world’s major central banks move to normalize larger than that of Greece, it is difficult to imagine
their monetary policies. To date, Italy has benefited that Europe could come up with a sufficiently large
importantly from the ECB’s bond-buying program bailout package to keep Italy in the euro were it to
and from low European interest rates. However, the come under sustained speculative attack or experi-
ECB has already halved the monthly rate of its bond ence a real bank run. This would particularly seem to
7
ITALIAN RISKS TO THE EUROZONE DESMOND LACHMAN AND RYAN NABIL
8
ITALIAN RISKS TO THE EUROZONE DESMOND LACHMAN AND RYAN NABIL
Appendix A
Table A1. Italy’s Political Parties and Their Economic Agendas
PARTY MAIN POLICY AGENDA
Democratic Party
• It leans center-left and is social democratic and pro-EU. • Negotiate with the European Union to abolish the EU’s fiscal
• It was founded in 2007 and has been in power since 2013. compact, which requires Italy to run lower deficits and trim its
• Paolo Gentiloni is the current head and nominee for 2018 high debt levels.
election; the former prime minister and current Democratic • Raise the budget deficit above 3 percent of GDP to cut taxes
Party leader, Matteo Renzi, is also seeking reelection. and increase investments.
• It traditionally supports immigrant, but Renzi’s recent hawkish • Continue Italy’s social and foreign policy, especially its current
rhetoric toward migrants has caused discontent in the party. membership of NATO.14
9
ITALIAN RISKS TO THE EUROZONE DESMOND LACHMAN AND RYAN NABIL
Table A1. Italy’s Political Parties and Their Economic Agendas (Continued)
Brothers of Italy
• It originated in 2012 to oppose Mario Monti’s technocratic • Renegotiate all EU treaties including the fiscal compact
government. and eurozone.
• The founding members belonged to the National Alliance, the • Increase support for Italy’s law enforcement and
successor to Italy’s neofascist parties.19 armed forces.
• It favors nationalism, national conservatism, and • Reduce taxes and bureaucracy.
euroskepticism. • Enforce immigration laws and tougher penalties for
• It is in a center-right coalition with Forza Italia and Northern violent crime.20
League. Its policies are similar to the Northern League, but
with support based in Central and Southern Italy.
Source: Authors.
10
ITALIAN RISKS TO THE EUROZONE DESMOND LACHMAN AND RYAN NABIL
Notes
1. John Follain and Chiara Albanese, “Italy’s President Dissolves Parliament, Triggering Elections,” Bloomberg, December 28, 2017,
https://www.bloomberg.com/news/articles/2017-12-28/italy-s-president-dissolves-parliament-triggering-elections.
2. Organisation for Economic Co-operation and Development, “Selected Indicators for Italy,” https://data.oecd.org/italy.htm.
3. Organisation for Economic Co-operation and Development, “Quarterly Growth Rates of Real GDP, Change over Previous Quar-
ter,” https://stats.oecd.org/index.aspx?queryid=350#.
4. Organisation for Economic Co-operation and Development, “Unit Labour Costs,” https://data.oecd.org/lprdty/unit-labour-
costs.htm.
5. Reuters Staff, “EU Shoots Down Berlusconi Parallel Currency Proposal,” August 23, 2017, https://www.reuters.com/article/us-
italy-currency-berlusconi-commission/eu-shoots-down-berlusconi-parallel-currency-proposal-idUSKCN1B32BP.
6. Eurostat, “Government Debt Up to 89.5% of GDP in Euro Area,” July 20, 2017, http://ec.europa.eu/eurostat/documents/2995521/
8118661/2-20072017-AP-EN.pdf/83147478-c193-40e9-8a0a-b76e56a5cebc.
7. Eurostat, “General Government Gross Debt—Quarterly Data,” http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&
language=en&pcode=teina230&plugin=1.
8. European Central Bank, “The Size and Composition of Government Borrowing in the Euro Area,” May 2010, https://www.ecb.
europa.eu/pub/pdf/other/mb201005_focus04.en.pdf?a09af0170bd1d12f1eb8ba4c8a9baa6e.
9. World Bank, “Bank Nonperforming Loans to Total Gross Loans,” https://data.worldbank.org/indicator/FB.AST.NPER.ZS?end=2016
&start=2005&view=chart.
10. European Central Bank, “Balance Sheet Items,” http://sdw.ecb.europa.eu/browseExplanation.do?node=qview&SERIES_KEY=117.
BSI.M.IT.N.A.A30.A.1.U2.2100.Z01.E.
11. Francesco Anania and Emanuele Vena, “Electoral Political Polls,” Termometro Politico, https://www.termometropolitico.it/
sondaggi-politici-elettorali.
12.
European Commission, “Public Opinion,” http://ec.europa.eu/COMMFrontOffice/publicopinion/index.cfm/Survey/
getSurveyDetail/instruments/FLASH/surveyKy/1092.
13. World Bank, “GDP (Current US$),” https://data.worldbank.org/indicator/NY.GDP.MKTP.CD.
14. Reuters Staff, “Factbox: Italy’s Election—Parties, Leader and Programs,” Reuters, December 28, 2017, https://www.reuters.com/
article/us-italy-election-parties-programmes-fac/factbox-italys-election-parties-leaders-and-programs-idUSKBN1EM1HE.
15. Reuters Staff, “Factbox.”
16. Reuters Staff, “Factbox.”
17. Binnie, “Italy’s Norther League Pledges to Put Right ‘Error’ of Euro.”
18. Reuters Staff, “Factbox.”
19. Edwards, “An Introduction to Italy’s Small Political Parties.”
20. Fratelli d’Italia, “The FDI-AN Program for the European Elections 2014,” http://www.fratelli-italia.it/programma-europa/.
11