The economic pain grows in Italy
Divisions at the heart of government
are costing Italy the confidence of the world.
By James Walston
For those of us not versed in the dark arts of accounting or international finance, there is little more solid than money; I have it or I don’t, I can borrow it or lend it and measure it down to the last penny. But confidence is an altogether different commodity, far more abstract and difficult to gauge. This week, Italy is trying to persuade us that the world should have confidence in both its political and its financial stability. It will not be easy.
The ratings agencies’ evaluation of a country’s creditworthiness are one measure of stability; another is investor confidence in the bond markets about Italy’s solvency. On both scores, the omens are getting worse for Italy day by day.
Until recently, Italy had avoided the worst of the world and European crises. There was no housing bubble, as Italian banks demand copper-bottomed collateral before they will lend the ordinary housebuyer a cent. There were almost no toxic assets, as banks are amazingly conservative in their investment policies.
Once upon a time, few Italian bankers spoke a word of English; today most speak the words and grammar, but to their credit they don’t speak the language of the City or Wall Street, or that of the innovative financial operators who filled the market with dubious products over the past decade.
Despite a declining economy, Italians still save; private saving is among the highest in Europe. Its debt is the second highest in Europe – at 120 per cent of GDP – but its budget deficit is not outrageous and is close to balanced when interest payments are taken out. Italy seemed condemned to a slow and fairly dignified relative decline, a bit like Venice in the 19th century. But the workings of the financial markets are not slow and Berlusconi and his government are anything but dignified, so Italy’s fate is rather different.