Political  Calculations

Italy is the eighth largest economy in the world and the second-biggest manufacturing economy in Europe.

The Italian government's tax collections from year to year have been near rock-steady as a percentage share of the country's GDP and, for over a decade now, the country has been running comparatively small annual budget deficits.

And yet, the Italian government is now behaving as if its financial situation is so dire that the nation itself is in imminent danger of going under.

How exactly does that happen?

Italy Government Spending and Tax Revenue per Capita vs 
GDP per Capita, 2000-2011

 

The short answer is that Italy is burdened by the policies of its past. In the 1980s, the nation began running up a truly phenomenal national debt in a short period of time, peaking at over 120% of the country's GDP in 1994, before falling back to be below 105% of GDP in 2007. Since then, it has ballooned back over 120% of GDP.

Italian Government Debt (% of GDP)

Starting from such a high level, Italy had little room to be able to absorb the impact from financial crises within its borders, such as the one driving markets today, where the Italian province of Sicily is at risk of defaulting on its own public debts and obligations.


Political Calculations

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