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Where Italy’s debt problems came from

Marketplace Staff Nov 11, 2011

Where Italy’s debt problems came from

Marketplace Staff Nov 11, 2011

Steve Chiotakis: There’s a new government expected to be sworn in today in Greece — an interim parliament to oversee more big spending cuts. In Italy this weekend, a new government will likely be sworn in to do many of the same things.

And Marketplace’s Stephen Beard is with us from Rome and reports on how the country is
literally split on the economy. Hey Stephen.

Stephen Beard: Hello Steve.

Chiotakis: I know Italy’s economic growth hasn’t really kept up with its debt. What’s driving the big disparity there?

Beard: Well, the low growth is largely due to things like excessive regulation, corruption and cronyism. The huge government debt, on the other hand — well a lot of that has been wrapped up keeping this country together. Italy has this kind of split economic personality between the north and the south — the relatively rich, productive north and the much poorer south.

The government has sent huge amounts of cash from the north down to the south to even things up. And that does account for a lot — but not all — of the debt.

Chiotakis: And how do you solve that problem and get Italy back to economic stability?

Beard: Of course, it’s going to be horrendously difficult. The government is today racing a raft of austerity measures through the parliament. But it’s going to be very difficult — the country is virtually in recession, the tax base is shrinking, the north is suffering too.

And as Professor James Walston of the American University here told me, to make matters worse, the country’s best know manufacturer — based in the north — Fiat, is thinking of bailing out.

James Walston: Fiat itself is possibly going to be leaving Italy. The CEO Marchionne has been talking about transferring as much as possible out of Italy.

Fiat is fed up with all the regulations, and problems with its labor force.

Of course, Italy could solve its debt crisis virtually overnight, if the tax-evading Italians paid their tax. They account for about 30 percent of the economy — but you can’t change the habits of a lifetime overnight.

Chiotakis: Marketplace’s Stephen Beard in Rome. Stephen, thank you so much.

Beard: OK, Steve.

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