Italy Is Not Greece

There's fear if Greece falls, the Euro and the union could dissolve.

Who would have thought a tiny nation without siginificant economic influence could wreak such potential havoc?

Ah, the power of currency integration.

The fear extends to Spain and possibly Italy.

Again, I feel compelled to point out a couple of things about Italy.

As I've argued on my blog, there's one major difference between Italy, Spain and Greece: Italy has a larger (more dynamic and developed) manufacturing and industrial base. It has good sources of cash flow. While its true the perceived risk in Italy is higher than its neighbours (it has a single A/negative outlook by Moody's and S&P but A+/Stable by Fitch. Japan and the USA also have negative outlooks. Of the three, Japan is the most worrisome), it's not Greece's and to a lesser extent Spain's scenario.

If Italy finds itself in default (mostly to itself since the majority of its debt is owed to its citizens), then yes, it's a major blow and possibly the true signal of a potential break up. Italy is the world's seventh largest economy, an original member of the ECC and major economic player in the G8.

Another major factor at play is that Italy is a co-founder and player in the EU (formerly ECC). I don't see a scenario where the Germans come and "bail out" Italy in the Greece fold.

I stand by the argument, despite major problems and inefficiencies, it's not debt the problem in Italy: It's GROWTH.

Obsession with debt (in a politico-economic context) is an Anglo-Saxon thing. Italians largely don't spend as a group being a traditionally a net saving society  (though that's come off since 1990) and so - this is just my guess - don't possess the same built-in fear and stress about debt as the UK, USA, Canada etc.

I think this article in the WSJ is a lot closer to the reality:

"Italy also already is running a primary budget surplus, which excludes interest payments, so it doesn’t face the epic fiscal journey to stabilize debt confronting other troubled economies. In the near term, Italy can live with current high interest rates. In reality, it has no choice as its refinancing needs would overwhelm existing bailout facilities."