On a day when it appeared the path forward was looking clearer for Greece, Italy grabbed the spotlight of concern. The markets ended up slight after a choppy day.
I talked with Domenico Lombard, a senior fellow at the Brookings Institution. Lombardi says it makes sense to turn attention to Italy, simply because Italy’s economy is so much bigger than Greece’s economy. Italy has the third largest economy of the euro zone countries, contributing 12 percent of the region’s overall GDP. Greece contributes just 2 percent.
Lombardi says Italy’s economy — and debts — are seen as so huge they could be beyond the capability of the European rescue fund or the International Monetary Fund if it ever came to that.
As for Italian Prime Minister Silvio Berlusconi, Lombardi says the international markets have already sent him a no-confidence vote, as evidenced by soaring rates on Italian bonds. He says Berlusconi has had a four-month window of opportunity to prove that he can cut spending in his country. In that time, two supplementary budgets have been introduced and yet neither contains important measures to address the very low rate of growth Italy has been experiencing over the years, reforms of both the country’s government and labor markets.
Berlusconi rejected calls today that he resign — in a Facebook message — and he’s struggling to hold on to his center-right coalition. His fate may be decided tomorrow in a Parliamentary budget vote. It may confirm that Berlusconi no longer commands a majority in Italy’s government.
Lombardi says a new leader in Italy will need to be someone who is very well known and who will show the world that Italy can make the necessary changes. However, not even a strong leader can change the fact that Italy has nearly two trillions of euros in sovereign debt and no obvious savior big enough to step in and help it pay.
Also on the show today, the Marketplace Daily Pulse is down on news that wealth has dropped 68 percent for younger U.S. households in the past 25 years, according to a new report from the Pew Research Center that relies on Census data. The report also found that the wealth of households headed by people 65 and up went dramatically the other way, rising 42 percent. Read more.
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