European Debt Crisis

Italians fear they may be next to fall

Christopher Werth Jun 16, 2010
European Debt Crisis

Italians fear they may be next to fall

Christopher Werth Jun 16, 2010


Kai Ryssdal: There’s yet another European debt meeting on for tomorrow in Brussels. They’ll be talking Spain this time, not Greece. Also, and again, how to save — or at least restore the promise — of the euro, the single currency. Back when the euro was just getting going, nobody was much worried about Spain or Greece. Italy was the weak link in the common currency. Now, 10 years later, even taking Greece and Spain into account, Italy could still turn out to be the eurozone’s biggest liability.

Christopher Werth continues our coverage of the European debt crisis from Rome.

Fabrizio Santi: The Pantheon is a Roman temple that was built 1,000 years ago…

Christopher Werth: With his white safari hat and dark sunglasses, Fabrizio Santi looks every inch the veteran tour guide. He stands by the giant bronze doors of the Pantheon — built by the ancient Romans as a temple to all their gods — and explains that many of them were based on Greek originals.

Santi: The Romans took a lot from the Greek civilization, especially after they conquered Greece in 146 B.C.

But today, few Italians want to be compared with the Greeks. And the old focus on the divine has given way to worries that are more down to earth.

An accordion playing

At this local food market, an accordion player strikes a wistful note. Nearby, fish seller Umberto Viola has watched with a sinking heart as worries over the debt crisis have undermined confidence in the euro abroad — and hurt his sales here at home. He says he’s angry about Greece misreporting its finances for years and then getting a bailout. And he fears Italy could be next country to fall.

Umberto Viola: Our government keeps covering everything up, hiding it until a point where everything will just explode. And that’s what makes us scared, because it also can happen to us.

So far, Italy has avoided the worst of the turmoil affecting its neighbors. Its budget deficit is only about half that of many other European countries. That is to say, the government is not spending vastly more than it’s taking in.

But Italy’s level of public debt is staggering. At around 118 percent of gross domestic product, it’s one of the largest in the eurozone. Every year, the country shells out tens of billions of euros in simply paying interest on what it owes.

Alessandro Terzulli is with SACE, an export credit agency controlled by Italy’s Ministry of Finance. He says if the cost of borrowing should increase, the government would find itself in a “very bad” situation.

Alessandro Terzulli: The markets started to get nervous after the Greek crisis exploded. And when this started spreading, of course, people start worrying about countries like ours.

So to calm investors, Prime Minister Silvio Berlusconi has followed other European leaders and announced deep budget cuts. He plans to slash nearly $30 billion in government spending. That will mean pay cuts and job cuts. And Italy’s labor unions are furious.

Sounds of chants and people shouting in megaphones

Thousands of demonstrators took to the Piazza della Repubblica in central Rome recently to protest. One of them, Lola Valgimigli says she’s angry over the decision to freeze wages for civil servants, and to raise the retirement age for women from 60 to 65 to match that of men.

Lola Valgimigli: Yes, some cuts are necessary, but they can’t just take money from workers and retirees. They should look for money among the wealthy. They should be taxed.

If Italy should need a bailout to avoid defaulting on its debts, the cost would be steep. It is, after all, the third largest economy in the 16-nation eurozone.

Pierpaolo Benigno is with Rome’s LUISS University. He says default is not an option.

Pierpaolo Benigno: Italy is a G-7 economy. You know, the default of a G-7 economy is a big thing. It’s not a Lehman Brothers. It’s not Greece. It’s pretty relevant in the world economy, so you can’t default. The only way you can get out of this is by growing.

But Italy’s economy has grown slowly for the past decade, and achieving growth now — when the government is about to slash public spending — would be no mean feat.

In Rome, I’m Christopher Werth for Marketplace.

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