{"id":99484,"date":"2018-05-31T18:03:52","date_gmt":"2018-06-01T00:03:52","guid":{"rendered":"https:\/\/dh.durangoherald.com\/tj\/samuelson-the-threat-from-italys-economic-turmoil\/"},"modified":"2018-05-31T18:03:52","modified_gmt":"2018-06-01T00:03:52","slug":"samuelson-the-threat-from-italys-economic-turmoil","status":"publish","type":"post","link":"https:\/\/dh.durangoherald.com\/tj\/samuelson-the-threat-from-italys-economic-turmoil\/","title":{"rendered":"Samuelson: The threat from Italy\u2019s economic turmoil"},"content":{"rendered":"
\"Samuelson\"
Samuelson<\/span>du1-i-syn<\/span><\/figcaption><\/figure>\n

Another debacle may be on its way. Its epicenter would be Italy, which may threaten the rest of the world economy.<\/p>\n

Under the worst-case assumptions, Italy could abandon the euro \u2013 the single currency now used by 19 countries \u2013 and experience a full-blown financial meltdown that would end in a deep recession. Other countries might well be caught in the economic downdraft. Already, that\u2019s roiled global markets in stocks, bonds and currencies.<\/p>\n

Recall that Italy\u2019s government debt now equals roughly 130 percent of its economy (gross domestic product). If investors fear they won\u2019t be repaid, they\u2019ll rush to sell Italian bonds to limit their losses. That, perversely, would lower bond prices, raise interest rates and possibly trigger a panic.<\/p>\n

Although this logic has long been true, it has taken on new urgency since the Italian election in March, when \u2013 unexpectedly \u2013 the two leading populist parties, the leftish Five Star Movement and the far-right League, scored huge gains. It\u2019s an unholy alliance, \u201cas if Bernie Sanders and Donald Trump got together,\u201d says Jacob Funk Kirkegaard of the Peterson Institute for International Economics, a think tank.<\/p>\n

The result was a joint economic agenda that, if enacted, would explode Italy\u2019s debt, say critics. The plan includes tax cuts, a minimum guaranteed income and higher old-age pensions.<\/p>\n

The Peterson Institute estimates the package\u2019s cost between 6 percent and 7 percent of GDP. To prevent Italy from abandoning the euro, President Sergio Mattarella rejected the populists\u2019 proposed government and effectively mandated a new election, which could occur as early as summer.<\/p>\n

It\u2019s a risky strategy, given widespread Italian hostility toward Brussels, the capital of the European Union.<\/p>\n

\u201cIf the League wins the election,\u201d says Kirkegaard, \u201cit would be interpreted that Italians want to leave the euro.\u201d Even so, Italians would be big losers if the economy nose-dived. Two-thirds of Italy\u2019s bonds, reports the Peterson Institute, are held by Italians \u2013 individuals, banks, pensions, insurance companies.<\/p>\n

Italy\u2019s larger problem is that it has too much government debt and not enough economic growth to reduce it.<\/p>\n

\u201cRemarkably, Italy\u2019s per-capita income is lower today than it was on the eve of the country\u2019s euro adoption in 1999,\u201d writes economist Desmond Lachman of the American Enterprise Institute.<\/p>\n

In recent years, annual economic growth has been virtually non-existent; from 2010 to 2017, it averaged annually two-tenths of 1 percent, according to figures from the International Monetary Fund.<\/p>\n

As Lachman points out, only Greece has a higher debt-to-GDP ratio among countries in the eurozone. But the big difference is that Italy\u2019s economy is 10 times as large as that of Greece, while its outstanding government debt of $2.5 trillion is the third largest in the world, just behind Japan\u2019s and the United States\u2019.<\/p>\n

If Italy defaulted, it would almost certainly lead to \u201ca full-blown European banking crisis,\u201d writes Lachman, as banks wrote off bad debts.<\/p>\n

No one, of course, knows what will happen. But Italy\u2019s present turmoil is a sobering reminder of the shortcomings of the euro itself. It deprives its member countries of the flexibility of devaluing their individual national currencies as one way of restoring their international competitiveness.<\/p>\n

Robert Samuelson is a columnist for The Washington Post. \u00a9 2018 The Washington Post Writers Group<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Samuelsondu1-i-syn Another debacle may be on its way. Its epicenter would be Italy, which may threaten the rest of the world economy. Under the worst-case assumptions, Italy could abandon the euro \u2013 the single currency now used by 19 countries \u2013 and experience a full-blown financial meltdown that would end in a deep recession. Other […]<\/p>\n","protected":false},"author":1,"featured_media":99485,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5758,6174],"tags":[125],"naviga_topic":[],"class_list":["post-99484","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-columnists","category-robert-samuelson","tag-newsletter-opinion"],"acf":[],"author_name":"dh_admin","_links":{"self":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/posts\/99484","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/comments?post=99484"}],"version-history":[{"count":0,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/posts\/99484\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/media\/99485"}],"wp:attachment":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/media?parent=99484"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/categories?post=99484"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/tags?post=99484"},{"taxonomy":"naviga_topic","embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/naviga_topic?post=99484"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}