The Last Thing the World Needs Is an Italian Debt Crisis

The last thing that a fragile world economy needs right now is another round of the European sovereign-debt crisis. Yet judging by recent Italian economic and political developments, that is what could very well happen as early as this winter. These dynamics will constitute a major challenge for a European Central Bank that is working to keep the euro zone together. It could also add to world financial market volatility.

Italy’s systemic importance is underlined by its very size. Not only is Italy’s $2 trillion economy some ten times that of Greece, its almost $3 trillion sovereign-debt market is the world’s third largest, following the U.S. and Japan. If in 2010 a Greek sovereign-debt crisis sent shock waves through the world economy, how much more so would an Italian sovereign-debt crisis do so today?

Italy’s main economic vulnerabilities are its mountain of public debt and its sclerotic economic growth. At around 150%, Italy’s public debt-to-GDP ratio is now the highest in that country’s history and the second highest in the euro zone, after Greece. Meanwhile, Italy’s per capita income today is barely higher than it was in 1999, when Italy joined the euro.

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Πηγή: aei.org