How Italy is different from Greece?

Italy and Greece have some stark differences in their Economy one difference is Italy is too big to fail and unlike Greece it is too big to be helped by others. Despite of all this Italy is in good shape as compared to the Euro Area countries and if the borrowing cost can be capped at 6% it may still remain solvent. As compared to Greece whose public debt was expected to rise to 190% of the GDP before private creditors decided to write off a bigger portion, whereas on the other hand Italy’s public debt is expected to stabilize at 120%. The net international debt on Italy is less as compared to other troubled economies. These debt levels can be bought down to comfortable level with high GDP growth The average Italian was worse off in 2010 than in 2000: GDP per head fell over the decade (see chart). Outsiders point to the lost option of devaluation to explain Italy’s funk. But the root cause of Italy’s lost export competitiveness is its dismal productivity growth.

The deeper causes of weak productivity are a two-tier jobs market, which protects the jobs of older workers in dying industries but traps youngsters in temporary work; the industry-wide wage bargains that mean businesses cannot match wages to productivity; the closed-shop professions and trades that are a barrier to innovation and efficiency; and so on.

Italy still has some world-class firms and brands, and an exporting prowess that could be built on. Yet it does not have enough firms of sufficient scale. The ubiquity of micro family businesses is related to Italy’s rigid regulations, as are its tax-collecting problems. Small firms fall below the regulatory thresholds and are less often attached to the formal economy. If Italy is to carry its outsize public debts, it urgently needs to promote an environment where big businesses can flourish.

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