When Greece ran up a debt that would make a degenerate gambler blush, you barely paid attention. Thanks again for the Olympics and for moussaka, but we have our own financial problems here in America.
Ireland, Portugal and Spain followed with their own versions of economic mea culpas. But talk of "European economic contagion" and "sovereign debt crisis" put most people to sleep faster than a couple of Ambien with a Wild Turkey chaser. Austerity programs sounded like real downers, too.
Now Italy has landed in the financial fray, and that has tickled the curiosity button in the back of your brain. Italy just seems more substantial, right? More connected to America than, say, Portugal, and with more financial gravitas than Ireland. In a word, it's bigger, and in America we appreciate bigger.
Put it this way: Experts often refer to those other troubled countries as falling dominoes. Important, sure, but from across the Atlantic Ocean those dominoes fall with an easily ignored clink. Italy's economic demise — which can still be prevented — would land like an anvil.
"Italy is too big to fail," said Moises Naim, a senior associate in the international program at the Carnegie Endowment in Washington told the New York Times. "If Italy gets hit by contagion because of political mismanagement, it would be a threat not only to the eurozone, but to the global economy."
Italy has the eighth-largest economy in the world — 15 times the size of Portugal's and about the size of Greece's, Ireland's and Spain's put together. European banks have almost 1 trillion euros ($1.4 trillion) invested in Italy, six times as much as the their exposure to Greece. Those banks stand to lose a lot of money if Italy and its European allies fail to right the ship. And we know what can happen if banks start losing money. Remember when the Dow Jones Industrial Average plunged below 7,000 a little more than two years ago, cutting your 401(k) in half?
U.S. banks have relatively little direct exposure to Italy, said Scott Brown, chief economist for Raymond James Financial in St. Petersburg. But there is a lot of interconnection between Europe and the United States.
Italy's troubles "could cause the debt crisis in Europe to heat up, and we'd wind up with a much more sinister financial crisis that could affect the U.S.," Brown said.
Italy, a country of 61 million people, is suffering from high national debt, slow growth and political dysfunction — a trifecta of potential economic undoing.
Its national debt hovers around 120 percent of gross domestic product, second-highest only to Greece among the 17 countries using the euro. Its economy expanded at an anemic 0.2 percent annually from 2001 to 2010. While political turmoil seems as Italian as gnocchi and soccer, the latest round included Prime Minister Silvio Berlusconi calling his finance minister, Giulio Tremonti, "not a team player."
Markets around the world reacted in recent days by plunging — then recovering. The interest rates on Italian bonds spiked, and if they stay high, it would be harder for Italy to pay its debt.
Worst case: Bond markets get so rattled that they close to Italy, cutting off its ability to borrow money. That would force the eurozone to pony up huge sums of money to keep Italy running, a gargantuan task given the size of Italy's economy.
Most experts agree that Italy is fundamentally in better shape than Greece and the other hard-hit countries. Its banks avoided speculation in the real estate bubble, and its current annual budget deficits remain relatively low at 4.6 percent of GDP. Its private sector also boasts a high savings rate.
Berlusconi, for his part, moved Tuesday to get a 40 billion euro ($56 billion) package of spending cuts and tax hikes passed quickly, maybe by Sunday, to reassure investors and help inoculate Italy from the spreading infection.
But that contagion thing that made your eyes glaze over is a growing presence in Italy. Psychology — a.k.a., lack of confidence or outright fear — can often overwhelm economic fundamentals.
"Italy coming under severe market pressure, being the third-largest economy and a founding member of the European Union, signals that the sovereign and banking crisis has reached a deeply systemic phase," Vladimir Pillonca, an economist at Societe Generale SA in London, wrote in a note to investors this week.
Italy, in other words, is worthy of attention.
Graham Brink can be reached at [email protected]