Make us your home page
Instagram

As Europe debt crisis shifts to Italy, time to start paying attention

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."

Interested yet?

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]

As Europe debt crisis shifts to Italy, time to start paying attention 07/12/11 [Last modified: Wednesday, July 13, 2011 8:49am]
Photo reprints | Article reprints

© 2017 Tampa Bay Times

    

Join the discussion: Click to view comments, add yours

Loading...
  1. Carrollwood fitness center employs scientific protocol to help clients

    Business

    In 2005, Al Roach and Virginia Phillips, husband and wife, opened 20 Minutes to Fitness in Lakewood Ranch, and last month they opened the doors to their new location in Carrollwood.

    Preston Fisher, a personal fitness coach at 20 Minutes To Fitness, stands with an iPad while general manager/owner Angela Begin conducts an equipment demonstration. The iPad is used to track each client's information and progress. I also included one shot of just the equipment. The center recently opened in Carrollwood. Photo by Danielle Hauser.
  2. Olive Tree branches out to Wesley Chapel

    Business

    WESLEY CHAPEL — When it came time to open a second location of The Olive Tree, owners John and Donna Woelfel, decided that Wesley Chapel was the perfect place.

    The Olive Tree expands its offerings of "ultra premium?€ extra virgin olive oils (EVOO) to a second location in Wesley Chapel. Photo by Danielle Hauser.
  3. Massachusetts firm buys Tampa's Element apartment tower

    Real Estate

    TAMPA — Downtown Tampa's Element apartment tower sold this week to a Massachusetts-based real estate investment company that plans to upgrade the skyscraper's amenities and operate it long-term as a rental community.

    The Element apartment high-rise at 808 N Franklin St. in downtown Tampa has been sold to a Northland Investment Corp., a Massachusetts-based real estate investment company. JIM DAMASKE  |  Times
  4. New York town approves Legoland proposal

    News

    GOSHEN, N.Y. — New York is one step closer to a Lego dreamland. Goshen, a small town about fifty miles northwest of the Big Apple, has approved the site plan for a $500 million Legoland amusement park.

    A small New York town, Goshen approved the site plan for a $500 million Legoland amusement park. Legoland Florida is in Winter Haven. [Times file  photo]
  5. Jordan Park to get $20 million makeover and new senior housing

    Real Estate

    By WAVENEY ANN MOORE

    Times Staff Writer

    ST. PETERSBURG —The St. Petersburg Housing Authority, which bought back the troubled Jordan Park public housing complex this year, plans to spend about $20 million to improve the 237-unit property and construct a new three-story building for …

    Jordan Park, the historic public housing complex, is back in the hands of the St. Petersburg Housing Authority. The agency is working to improve the 237-unit complex. But the latest plan to build a new three-story building for seniors will mean 31 families have to find new homes. [LARA CERRI   |   Tampa Bay Times]