It doesn’t make much difference who is in charge of Italy anymore. The country is bust. The only question is when, writes Matthew Lynn.
Nov. 8, 2011, 11:22 a.m. EST
Italy is bust; it’s just a question of when
Commentary: Italy has a lot of debt, and a lifeless economy
By Matthew Lynn
LONDON (MarketWatch) — When a man has survived as many corruption, financial and sex scandals as Silvio Berlusconi has over two decades in Italian politics, it would be a mistake to assume that a small matter like the imminent bankruptcy of his country will be anything other than a minor setback to his career.
Even so, the great survivor of European politics — he first assumed the premiership in 1994 — looks close to leaving the stage. Whether he survives the latest confidence vote remains to be seen.
But, in fact, it doesn’t make that much difference who is in charge of Italy anymore. The country is bust, and the markets have woken up to that. The only question is when.
The only remarkable thing about Italy is that it has taken it so long to become the epicenter of the euro-zone’s crisis.
.
.
.
You’ll hear plenty in the next few days about how Italy faces a liquidity crisis, not a solvency crisis. It just needs some help to tide it over a difficult patch.
And you’ll hear plenty as well about how Italy is too big to go bust. Well, they said the Titanic was too big to sink, but that didn’t help when it struck an iceberg.
.
.
.
The trouble is, Italy faces three big problems.
First, while government debt may have been fairly stable over the last decade — admittedly at fairly high levels — just about every other type of debt has exploded.
.
.
.
Next, Italy has stopped growing.
.
.
.
Lastly, Italy has the worst demographics in the world.
.
.
.
There is no way the country can stay solvent. It is already paying almost three times as much for 10-year money as Germany. The rate of interest on government debt sets the benchmark for borrowing for the rest of the economy. If Italian companies pay three times as much for finance as their neighbors, how are they meant to stay in business?
Italy might be bust this year or next or the year after. In the end, the timing doesn’t make much difference. It isn’t facing a liquidity crisis, and the rest of the euro zone is either unable or unwilling to put up enough money to save it. It is insolvent — and, with 1.9 trillion euros of debt outstanding, that is going to be a cataclysmic event for the world economy.
Full story: http://www.marketwatch.com/story/italy-is-bust-its-just-a-question-of-when-2011-11-08
Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months
| 