Italy & Debt Dynamics

The world’s third largest bond market is in trouble adding a much greater degree of urgency to sorting out the Eurozone’s woes. Political ineptness, the failure to reform, high levels of debt and the huge loss of wage competitiveness in recent years help explain the long-predicted crisis in this G7 economy. Although Italy has been running a primary surplus, private sector savings are relatively high and its institutions avoided some of the worst banking and housing market excesses, this has not been enough to stave off doubts about longer-run solvency.

For further insights on the woeful lack of competitiveness, the impact of margin calls, the role of €500 notes and comparisons with Greece, see the following…

Addio, Silvio, The Economist, 12 Nov 2011
Europe’s debt crisis: Rushing for the exits, The Economist, 12 Nov 2011
That sinking feeling, The Economist, 12 Nov 2011
Debt dynamics: The maths behind the madness, Economist, 9 Nov 2011