Since adopting the euro, Italy's debt as a percentage of GDP has
shot higher than that of Greece, its competitiveness is on the
decline and growth has been feeble. Italy's exchange traded fund (
) has been feeling the strain, sinking 12% in the last two
Uri Dadush for Gov Monitor suggests
that Italy should begin to take preemptive steps, including
adopting a three-year program to raise its primary balance by 4% of
GDP and engineer a real devaluation of 6% through wage cuts and
structural reforms. Furthermore, the Eurozone needs to stimulate
domestic demand, rely less on exports, maintain expansionary policy
and target a weaker euro, adds Dadush.
After the outbreak of the crisis:
- Italy's debt has shot up to 115.1% of GDP in 2009, and it is
projected that Italy's debt will increase to 123.5% in 2011 and
128.5% in 2014.
- With interest rates near 4%, interest costs alone may lead
Italy's debt to grow faster than its slow economy, which is
estimated to average 3% over the next seven years.
- The government has shown some fiscal management
responsibility, and spreads on 10-year government bond yields
have risen much more in Greece than in Italy. [
Why Investors Are Selling Italy's ETF.
Italy's competitiveness has been slowly deteriorating after
joining the eurozone because Italy tried to mirror German wages,
which kept pace with productivity. A recent European Commission
study concluded that from 1998 to 2008 exports of goods and
services grew more slowly in Italy than in any other member
A Tale of Two ETF Industries.
Failure to deal with the Greek crisis and contain it could lead
to a surge in interest on both government and private borrowing,
which would stifle Italy's recovery by forcing its government to
further depress exports and incur greater fiscal adjustments.
Additionally, sustained global growth could translate into another
increase in oil prices, and Italy, which imports 93% of its supply,
would be hit again. [
Netherlands ETF: A Diamond In the Rough.
For more information on Italy, visit our
iShares MSCI Italy Index (NYSEArca:
Max Chen contributed to this article.