Italians Fear Following Greece Into Debt Crisis

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The Italian government says Italy is suffering financial woes similar to those of other southern European countries. It plans spending cuts of nearly $30 billion over the next two years. The news came as a shock to Italians because until recently, Prime Minister Berlusconi insisted that Italy had escaped the worst effects of the global economic crisis.

DAVID GREENE, host:

We've been reporting a great deal, of course, on the financial troubles in Europe, and on Greece, in particular. But it turns out Italy is suffering similar problems. Now it's planning some big spending cuts. The news has come as a shock to many Italians because Prime Minister Silvio Berlusconi insisted Italy would not be hit by this crisis.

NPR's Sylvia Poggioli has this report from Rome.

Unidentified Man: (Italian spoken)

SYLVIA POGGIOLI: Rome has a new speaker's corner, where experts come to explain Italy's economic crisis. A small group gathers to join the discussion. Will Italy end up like Greece?

Mr. ARTILIO FAVIANO(ph): I'm coming here to hear, to learn, and maybe to find a way to participate in the future.

POGGIOLI: Artilio Faviano says the government has not been honest about the crisi, the crisis.

Mr. FAVIANO: The crisis is heavy. They're told the crisis light, that we can overcome without too many problems. But they will ask us for other sacrifice. This is not good. They're liars. All liars.

POGGIOLI: Today's speaker is financial journalist Roberto Petrini.

Mr. ROBERTO PETRINI (Financial Journalist): (Through translator) We still don't know the details of the spending cuts, but it's certain that pensioners and civil servants will be hardest hit.

POGGIOLI: Petrini says Italy is not in the same boat with Greece, not even with Spain or Portugal. Its annual deficit is 5.3 percent of GDP, nearly three times smaller than that of Greece. He cites Italians' high personal savings rates - 15 percent of incomes compared to less than one percent in Greece. Italy was spared the housing bubble. Its banking system weathered the global crisis. And more than 50 percent of Italian government bonds are owned by Italians themselves, compared to 90 percent of Greek bonds in foreign hands. That means Italy's financial system is less vulnerable to the whims of foreign investors.

Professor FRANCESCO GIAVAZZI (Economist, Bocconi University): What is worrisome about Italy is the lack of growth and the high debt.

POGGIOLI: Economist Francesco Giavazzi teaches at Milan's Bocconi University.

Prof. GIAVAZZI: This is not something which is urgent as having a very large budget deficit, but still is a reason for concern, in particular the fact that this country has had virtually no growth since the beginning of the euro.

POGGIOLI: When it adopted the euro in 2002, Italy could no longer devalue its currency to boost exports. In the last decade, massive loss of export markets forced many businesses to close. Lack of spending in research and development led to the closure of big steel and chemical companies.

The economy now depends heavily on small and medium sized manufacturing firms in north and central Italy. And in 2009, GDP dropped a whopping 5.1 percent. Italy has other long-entrenched problems that hamper investments and growth. The audit court that oversees public spending says corruption cases are soaring, a 229 percent increase last year over 2008. And one-third of Italians evade taxes, costing the state many billions of dollars. In addition, organized crime turnover is estimated at seven percent of GDP. But the Berlusconi government always said all is well.

Mr. STEFANO FELTRI (Financial Journalist): They said for years that Italy is not touched by the crisis, with stronger export market, with strong currency and with strong economy. That is not true.

POGGIOLI: Financial journalist Stefano Feltri says Italy must urgently tackle all its long-term debt. At 118 percent of GDP, its accumulated debt is second in Europe to Greece. He says the IMF is calling for radical structural reforms, like greater mobility in the labor market, reducing labor costs and shrinking the large public sector in order to boost growth.

But Feltri says Finance Minister Giulio Tremonti appears to be improvising, using Italian data that conflict with what's gathered by international organizations. He compares Tremonti's use of numbers to a strip-tease dancer peeling off her clothes.

Mr. FELTRI: Our finance minister, he is dancing the seven veil dance. Each time he speaks to financial markets in the European Union, he takes down some clothes. At the end, Italian finance will be naked.

POGGIOLI: Just how naked depends on whether Berlusconi, whose vocabulary does not seem to include the word austerity, can impose sacrifices required by what the opposition calls a budget of blood and tears.

Sylvia Poggioli, NPR News, Rome.

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