As Greece wins at least temporary respite from its debt troubles, will Italy be the next to face a crisis?
The chronically underachieving nation is saddled with an astonishing level of debt, no real prospect for growth, and a a leader mired in scandal.
True to form, Italians, by nature prone to living in the moment, don't seem too concerned: they have high levels of savings, tourism, iconic brands and a habit of muddling through.
As Greece struggles to extricate itself from its stunning troubles, Italy is in the sights of the world's euro-skeptics with good reason. Public debt is at a Greece-level 115 percent of GDP, and the euro1.2 trillion economy contracted by 5 percent last year — among the biggest drops in the euro zone — and is expected to grow only slightly this year.
But Italian officials — backed by economists — insist that the country's high level of private savings, experience dealing with deficits and prudent fiscal management in the recession have made it resilient.
Economists and investors are debating whether the 'i' in PIGS — the unkind moniker used to single out the sluggish economies and big deficits of Portugal, Italy, Greece and Spain — really stands for struggling Ireland, not Italy. Some propose extending the acronym to PIIGS. But many Italians take the attitude: If you have a pig, make prosciutto.
Thus far the markets — which turned so savagely on Greece in recent months — appear to agree.
Ratings agency Fitch has indicated that Italy's country's AA- rating is stable. One result of this: although Italy shares some of Greece's afflictions — corruption in addition to the debt and slow growth — its borrowing costs are not as high.
And Italy's debt is of longer maturity and its spreads, or interest rate difference, over benchmark German debt are smaller than for Greece.
It may be something in the very nature of the land and its people.
This is, after all, a country where the postwar period was marked by revolving-door governments whose rapid rises and falls hardly concerned the masses.
So people seem sanguine about problems that might agitate a society with less perspective — or cynicism: a widening corruption scandal involving contracts for the G-8 summits, rigging of soccer games, the many investigations targeting Premier Silvio Berlusconi, mostly for his business dealings but more recently for allegations that he has used his influence on RAI state television's political coverage.
And when the problems do hit home, Italians tend to rely heavily on their families, who, thanks to Italy's postwar economic rebirth, have so far been able to provide very tangible cushions against more recent trends of stodgy growth, low wages and uncertain employment.
But Italians' calmness may soon be severely tested by masked vulnerabilities.
Companies from its largest employer Fiat to small companies and artisanal enterprises have been taking advantage of Italy's unique form of temporary layoffs at a maximum 80 percent pay from a government-industry fund, allowing companies to halt production during slumping demand, while maintaining workers' ties to the company.
That masks unemployment, and so far the programs have kept Italy's unemployment rate to a relatively stable 8.2 percent, and prevented internal demand from collapsing. Now, some 18 months into the crisis, the schemes, which can only be used for 52 weeks in any two-year period — are set to expire.
Workers like Katya Tomba, who has toiled for a decade for a small tannery that prepares leather for furniture outside of Verona, expects to be officially counted as unemployed at the end of June. The 41-year-old mother of two has been laid off since last June, receiving around 850 euros ($1,168) a month of her usual 1,200 euro salary.
"There's no going back," Tomba said. "I stopped by the office the other day and they told me that there are no orders, and not enough work for everyone, and that they will probably let more people go."
Claudio Giovine, an industry expert at Italy's National Confederation of Crafts and Small and Medium-Sized Enterprises, said data due out in the coming months will be key to revealing if there is more hidden unemployment than officially recognized. Not only will the temporary layoff schemes expire, but figures expected by fall will show whether or not millions of self-employed workers are giving up their business licenses.
"Some will lose their business, some will keep operating, but earning 10,000 euros instead of 30,000 euros," Giovane said.
And not only that.
The economy is uniquely driven by small and medium businesses, comprising 99.6 percent of all registered companies, and numbering some 4.48 million enterprises compared to about 3,600 large companies, or those with more than 250 workers. And many of these experienced a fall in orders of up to 50 percent last year, Giovine said.
This has created a potentially debilitating cycle, with payments to suppliers, which always ran a lengthy five months in Italy, now nearly completely stopped, Giovine said.
"The social stabilizers have been providing oxygen to the ailing. Now it is time to see if it is ready to take off again, or if the oxygen will run out," Giovine said. "Just because it is less perceptible, does not mean the social drama does not exist."
If there are hidden weaknesses, Italian business has some unique strengths.
Many of those privately held companies have prudently kept their debt levels down. Households also have high private savings to fall back on. And low salaries mean the country has a built-in advantage in competitiveness.
Italian workers earn the lowest salaries in Europe — earning on average 14,700 euros ($21,300) a year — behind only Portugal in western Europe, according to the OSCE. An Italian worker earns 44 percent less than a British worker, 32 percent less than an Irish worker, 28 percent less than a German and 19 percent less than a Greek, 18 less than a French worker and 14 percent less than a Spanish worker, according to a 2010 report by the research institute Eurispes in Rome based on OSCE data.
Yet, home ownership is extremely high, which takes stress off in hard times, and often bankrolled by parents or grandparents. Italians are adverse to taking out loans, though this is changing, and put on average much higher downpayments on real estate purchases than in countries like Ireland or Spain, which experienced the housing bubble.
Even those supports have limits. "There is a lot of leaning on the previous generation. How long can that last?" asked Marco Annunziata, the London-based chief economist for Unicredit, Italy's largest bank.
"It goes back to the issue of how fast is the economy growing. If the economy is growing very little, as it has over the last 10 years, it means the generation of new income is very slow. Unless the growth of GDP and income accelerate, then either we will see a constant erosion in the level of savings, or we will need to see some scaling back in the standard of living."
But it may ultimately be Italy's own take-it-as-it-comes attitude, and natural prudence, that has helped it stave off what other seemingly more dynamic economies, such as Spain, Britain and the United States, have suffered.
"We are living through a crisis caused by too much risk-taking by investor banks. In a situation like this, a country that enjoys more life, and lives at a slower speed, might look sustainable," said economist Franco Bruni at Milan's Bocconi University. "It is probably true that capitalism changes its music, and goes toward a more sweet waltz and stops rocking around."
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