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From the Peterson Institute for International Economics, Carlo Bastasin writes about the strength of the Italian economy, financial standing, export potential and growth capacity.

 

Italy: Fat PIIG or Lazy Cat?

 

“Observers of the Italian economy have split between two radical camps: emphatic doomsayers and ardent optimists. Both attitudes are symptoms of an understandable difficulty in comprehending the contradictory developments of the Italian economy and society in the last two decades: Italy has a surprisingly solid fiscal structure. But it is worryingly weak over the longer term because of its growth capacity.”

 

 

 

Here are a few highlights of Carlo Bastasin's article:

 

The ardent optimist perspective:

 

  • For now, financial markets are more favorably impressed by Italy’s fiscal performance than the international media: "In some instances investors have used Italian bonds to hedge the Greek risk, as they normally do with German bonds. Indeed, if risk aversion does not become indiscriminate throughout the euro area, Italy could come out of the crisis as a ‘fiscal winner’."
  • "The relative stability of Italian fiscal accounts has been acknowledged by the Sustainability Report of the European Commission, which projects the path of the debt to GDP ratio for Italy in 2060 to come in at a substantially lower level than those of Germany, France, and the United Kingdom."
  • "Italian producers rarely range among the world’s top three in any of industrial macrosectors (i.e., mechanics, chemicals and so on) but once the data are broken down to single product categories (from over 5,000 categories in the UN database), Italy’s exporters range in the top three positions in more than 1,000. The detailed data suggest an Italian economic structure of unsuspected feline flexibility."

The emphatic doomsayer perspective:

 

  • Low growth has been the hallmark of the past two decades.
  • The different dynamics of unit labor costs across the European Union provide striking evidence of Italy’s loss of competitiveness.
  • The small size of Italian firms has led to a low level of research and of technology.
  • Italy’s economy fell in 2009 by more than 5 percent (more than the EU average of 4.1 percent). Much of this performance resulted from a total lack of public expenditure in support of domestic demand. So although Italy may become a “core country” in terms of fiscal stability, it remains a diverging country in terms of income growth.

 

If you have the time, I encourage everyone to read the full article; it is a superb economic explanation of the current Italian economic environment.

 

BAIA community, do you think Italy is a Fat PIIG or a Lazy Cat? Please comment.

 

Sergio

BAIA Comm & Marketing Intern

 

 

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...a fat (hence "slow") cat?!?
:)

Loved this article.

I agree with Giorgio!

In the end I think Italy is  a mix of both... 

It's absolutely true that the small size of Italian firms has really led to a  level of research and of technology too low to support any progress and the unit labor costs have brought the country to a big loss of competitiveness.

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