When you climb very high mountains, at about 26,000 feet you enter the Death Zone. At that altitude, there’s simply not enough oxygen in the air to sustain human life, and humans who enter the Death Zone without supplementary oxygen know they can only survive up there for a small period of time.
Europe’s Death Zone appears to be the point at which interest rates hit seven percent. That’s when Ireland, Portugal and Greece needed oxygen – otherwise known as a big chunk of bailout money. But Italy may be made of sterner stuff. Here’s the thing about altitude: it affects different humans in different ways. Depending on your physiology, you might not feel any effects of altitude, while everyone around you is collapsing.Some very strong people are able to climb the highest mountains in the world without any supplementary oxygen at all.
How do you know if you’re this kind of person? One way is to look at personal history, and a glance at Italy’s history shows that it has spent a little time in the Death Zone before. Back in 1993, Italy’s public gross debt was roughly 116 percent of GDP, and the yield on its ten-year bond was higher than 12 percent. In 1995, yields jumped to more than 13.5 percent, and debt-to-GDP was 129 percent. That’s pretty hypoxic.
It’s true, today Italy has more debt than it did in 1995. But not an enormous amount more. Gross debt to GDP today in Italy is around 135 percent. But the interest rate Italy is just seven percent, half what it was in 1995.
Back then, of course, the Euro didn’t exist, so Italy wasn’t as connected to its European neighbors as it is today. And Italy’s government expenditure has risen sine then, so it has less money to spend on servicing its debts. Which is why reforms are so important. Italy anticipates collecting 500 billion euros in taxes next year, while its cost of debt will be about 140 billion Euros, so it’s a question of adjusting its priorities on the fiscal end, and making its economy more efficient and productive. Italy seems bent on putting those austerity measures and reforms in place.
Which means there could be a lot more life in the old dog yet.