Italians used to laugh at the eurozone crisis. We?re not Greece! Not any more. The parallels between the two countries are stark?and extend beyond politics. Happily, the differences are just as important. But Italians must help themselves first. They could start by ousting Silvio Berlusconi, the prime minister. Italy is like Greece in two ways. First, its political culture makes structural reforms impossible. That erodes competitiveness: witness the hollowing out of its famed textile industry. Second, Italians are addicted to tax evasion. The black economy was equivalent to about a fifth of official gross domestic product in 2007?second only to Greece among OECD countries?according to Professor Friedrich Schneider of Johannes Kepler University in Austria. No wonder that Italian household debt is only 40% of GDP compared with a European average of 75%. These two factors complicate Italy?s debt predicament. Sluggish economic growth has allowed the debt ratio to climb to 120% of GDP. About a quarter of its ?1,900bn of public debt (of which ?1,600bn is sovereign) matures in the next two years.
Italian 10-year bond yields stand at 6.5%, compared with 4.7% in May; refinancing will be expensive.
Here Italy?s differences to Greece matter. Rome?s problem is not really its ability to pay (a roughly ?85bn total interest bill next year versus projected tax revenues of ?500bn); it is a collapse in credibility. Some of the higher refinancing costs must be borne while that is restored. But that should be manageable, because the biggest difference between the two countries is that Italy is rich enough to help itself. Government debt is just 23% of household wealth, brokers Cheuvreux say. A reforming government would impose a windfall tax on that?and ensure that it is collected. Then it would begin the structural reforms essential to free an entrepreneurial spirit cowed by years of missed opportunities. Italians should look at the upside of a post-Berlusconi era and get ready to grasp it.