Tag Archives: Italy

What is Next?

Technocratic Government in the Europe could bring up the much awaited changes in the whole system and it has the capability of stopping what is looking inevitable at the moment.One big problem with the world is that it has become increasingly polarized and in the absence of a clear-cut global leader no one is willing to come up and help the troubled economies. In today’s capricious, complex environment there is no margin for error. My topic for this article is to take the discussion on what happens now.

As far as Greece in concerned I believe the Economist PM can bring a change. Some changes are palpable as he firmly wants Greece to continue to be a Euro member and secondly his sound policies has helped Greece, as it look now, to avoid the debt crisis tragedy. The signals that Italy is sending currently are not very positive for Investors and this political hassle might continue to be a problem.

Euro zone institutions and politics have to be reshaped to prevent this type of crisis from ever happening again. Until this risk is mitigated, lending costs will stay high for a long time to come.

I do not think that the Euro will fracture for one there is no clear-cut policy for opting out from the group and also The Governments of the troubled economies believe that it is in their good to continue to be a member so they are reluctant to drop out and I believe no one will. They Cost of opting out seem to outweigh the benefits.

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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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