No, Italy does not have Spain\’s problem

Italy has economic problems, for sure, but they\’re not the same as Spain\’s problems:

Eventually, the same could happen in Italy.

No, the quite remarkable thing about Italy is that it doesn\’t, in any manner at all, have Spain\’s problem.

Which is, of course, a massive housing boom followed by a crash and now half the population* is under water on their mortgages and there are a million houses left uncompleted and unsold.

What\’s remarkable about Italy is that almost no one has a mortgage. That leverage problem just is not there in any manner at all.

16 thoughts on “No, Italy does not have Spain\’s problem”

  1. So Much For Subtlety

    But Spain did not have Greece’s problem either. Yet the same maladjustment was present in both countries, it just took different forms. Italy has also had undeservedly low interest rates and a high exchange rate too. That will be manifested in some way at some point. Just as it has in Greece and now Spain.

    But my money would be on France to be the next to go, not Italy. I have no logical reason for this, just a gut feeling. Soc-Gen? Only a matter of time I think.

  2. I live in Italy for what it’s worth I agree with Tim, and I think Italy will escape the worst of the crisis.

    Predicting after Spain for me is a mug’s game, as Spain will be a game changer; on ZH there’s a thing about banknote paper – probably the most likely thing after Spain is that Germany re-introduces the DM

  3. Italy, unlike Spain, has got a serious government debt problem – about 120% of GDP. And it’s having to roll a lot of debt this year at high interest rates. Growth is negative. This is not sustainable.

  4. But my money would be on France to be the next to go, not Italy. I have no logical reason for this, just a gut feeling. Soc-Gen? Only a matter of time I think.

    A few weeks ago a Cato daily podcast* mentioned that the Bank of France had removed its balance sheet from its website, an unusual thing to do apparently. There was a bit of speculation about what this means and none of it had a happy ending for France.

    Perhaps one of the more knowledgeable banking specialists who read this blog can confirm if it did happen what what it was about?

    * I can’t remember which one and don’t have the time to listen to them all again so you’ll have to take my word.

  5. I’m in agreement with PaulB on this one. Italy has very high public debt, no growth and an ageing population. In this it is much like Japan, but without the ability to do QE for 20 years. The main thing (apart from Spain’s problems) keeping Italy out of the spotlight at the moment is one M. Monti. But one man alone cannot turn back the tide. Italy will be next.

    Having said that, I share SMFS’s concerns about France. If Greece leaves, France’s banks are dead.

  6. Italy actually does economically productive stuff. Looking around my flat and thinking about my life, I can see quite a few things made by Italians or done with Italian expertise. Looking for Spanish equivalents, not so much. Write off all the debt, and the Italians do enough to support a relatively first world lifestyle. Do the Spanish? The case is weaker.

    (There is a major north/south inequality in both countries that complicates thing. Perhaps this argument only applies to the north of Italy, but it does apply there).

  7. Michael

    The north/south divide in Italy is very significant. It’s probably fair to say that if the north weren’t bankrolling the south, it would be a very prosperous country in its own right. Has Tuscany started an independence movement yet?

    Tim adds: “Has Tuscany started an independence movement yet?”

    Umberto Bossi’s “Northern Leage”. Absolutely great idea except for being more fascist than Alessandra Mussolini.

  8. The other point about Italy is that its government debt was accumulated a long time ago: the last 15 years (after the collapse of the postwar “corrupt as you like as long as you’re not a commie” coalition) has seen a genuine step change in the country, with massive declines in corruption and huge improvements in fiscal discipline. Yes, even under Mr Bunga-Bunga.

    So we’ve got three very different sorts of indebted nation: Greece, which is indebted because it stole and wasted the money (unique case); Spain, which is indebted because the government baled out the banks after a property boom collapsed (see: Ireland, UK); and Italy, which is indebted because of corruption a generation ago that’s now been addressed (rather akin to the African regimes who inherited debt from their Cold War era thugs).

    If I were an austere Lutheran parson’s daughter who happened to have All The Money, I might apply rather different moral judgements to the three cases.

  9. john b

    But she doesn’t apply different moral judgements to the three cases. Greece and Ireland have effectively been treated exactly the same – as basket case profligate governments, even though Ireland was anything but. And we now know that Spain, whose woes are much like Ireland’s, is to be treated much more gently. If I were being cynical I would say that the main driver is what she can get away with – Greece and Ireland are only little countries, so she can bully them, but Spain is an entirely different matter. And if I were Irish, I’d be bloody furious.

  10. Agree on Ireland, although I think that was before the full scale of what was going to be needed elsewhere was required. However, I think part of why the Spanish plan is more lenient than the Greek plan is because there’s more sympathy for the Spanish than for the Greeks; I also agree there’s an element of the possible in there as well.

  11. Would n’t be so sure Italy is some kind of exception to the general rule that economic problems generally start from rapidly increasing house prices.See Francesca Modena and Concetta Rondinelli “Leaving home and housing prices”2011(on Net) Intro: “In recent years house prices more than doubled in the largest Italian cities (Panetta et al 2009).”
    These rather formidable statisticians from University of Trento and the Bank of Italy respectively, deduce “sharp increases in housing costs” have led to Italian young people not leaving home, or forming households and even “reduce the total fertility rate( Kohler et al 2002). ”
    They then state baldly”The recent global crisis had its main origin in the financial and real estate sector,so that developments in housing markets should be kept under contr0l because of their potential disruptive impact on the financial stability and the real economy (Campbell et al 2008;Panetta et al 2009;Muzzicato et al 2008 ;Leamer 2007)”
    So pervasive is the hegemony in Britain of the house prices are beneficial (Homeownerist) school,that I seriously doubt that a paper like this could have been written here.
    Another exception is said to be Greece but house prices there tripled in the key fifteen year period leading to the crisis (see dry-as-dust physicist Stuart Staniford who examines bank of Greece figures on his Early Warnings blog, the only criticism being that his warning about Greek house prices came a bit late in May 2012).

  12. You’re saying that rising house prices in Italian cities between about 2001 and 2007 caused Italian governments to run large deficits up until 1996?

  13. the general rule that economic problems generally start from rapidly increasing house prices

    Historically, the general rule has been that economic problems generally start from wars. Tank Value Tax, anyone?

  14. You will need to contact Stuart Sandiford to find out why he thinks property price movements are an early warning (he also tracks property busts as in China.)
    The Italian ladies who give plenty of good reasons why” developments in housing markets should be kept under control “make a lot of sense and until I get a similar wealth of statistical detail from an alternative school of thought,I will stick with them.

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