Italy Faces Its Own Financial Woes
SIEGEL: What are the problems with Italy and what are the Italians doing about it? We're going to ask Roben Farzad, a senior writer for Bloomberg Business Week. Welcome back to the program.
M: Hi, Robert. How are you?
SIEGEL: And first, how would you sum up Italy's economic problems?
M: But when times are bad, i.e. this great global recession of ours, suddenly you have a dynamic where the haves and the have-nots are exposed for what they are. And the smaller countries, the more peripheral countries, turns out that they really borrowed beyond their means.
SIEGEL: Italy, though, is not a small country. It's one of the larger economies in Europe.
M: Right. But it's also the perennial sick man of Europe. It's a slow growing economy. It's not monolithic. The south tends to be poor. The north is wealthier and more industrious and has the majority of the finance and the capital and whatnot. The problem is, when times are good and risk is perceived as being overrated, you have the international debt capital markets being very easy with loaning money to countries. And slow growing countries like Italy and Japan, if you look at their last 20 years, they tend to over-borrow in order to make ends meet. Believe it or not, Italy is the third most leveraged country in the planet.
SIEGEL: Somehow, that became inescapably clear to people who deal in bonds this week. Something happened this week, it seems, to make people say, get rid of Italy's bonds.
M: And in the same respect, we have the dynamic of the PIGS in Europe, Portugal, Italy, Ireland, Greece and Spain. And so, Greece is clearly out there. Ireland is, you know, had its issues, a bailout and so did Portugal. And now, the next frontier is Spain. That would have been unthinkable. And the worst case scenario is this then jumps over to Italy, which is the third largest economy in the continent.
SIEGEL: Well, what are the Italians doing about this and what do their creditors hope they're doing about it?
M: I mean, there's a certain element of inevitability that, you know, if this all persists, if we have another stopgap situation that the euro, as it was conceived only a few years ago, is not long for this world.
SIEGEL: Okay. Thank you, Roben.
M: Thank you.
SIEGEL: That's Roben Farzad, senior writer for Bloomberg Business Week, who spoke to us from New York.
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