Rome and Eurozone: Italy is Biggest "PIIG" But Maybe Too Hard-working to Succumb to the Global Crisis that Threatens the Euro     Print Email


Italy has managed to largely avoid the media spotlight in the eurozone crisis, even though it is one of the so-called “PIIGS” (Portugal, Ireland, Italy, Greece, Spain) always listed as the weak links in Europe. But Greece’s crisis and now Spain’s worries have overshadowed the potentially even larger problem in Italy. After all, it’s the seventh largest economy in the world -- seven times larger than that of Greece. But it has problems, too. So, as one commentator puts it, Italy is the “largest of the vulnerable countries, and most vulnerable of the large.” 

Italy has its own strengths (its sovereign debt is low and most of its private debt is held in Italy itself) but it also has its weaknesses. The country is plagued by stagnant growth, high public debt (118 percent of GDP), and astounding levels of mistrust in business activity. In the global slump, this combination of bad factors combine to push the Italians into dire circumstances such as those afflicting Mediterranean neighbors in recent months.

Other social factors, such as the strength of the many sectors of “guilds,” (an Italian version of trade unions) worsens labor market-rigidities (i.e. firing and hiring) and raises the costs of services, thus impairing Italy’s business growth.

Of course, Italy has mastered the arts of flexible bookkeeping and wholesale circumvention of unions and work-related laws. Unlike Greece, where such practices have led to economic prostration, the Italians often seem to practice these “work-around” subterfuges with a view toward more production. Given this special kind of black economy in Italy, the situation is hard to measure for outsiders (indeed perhaps even for Italians themselves). But the New York Times has tried.

Meghan Kelly, European Affairs