It would be wrong to assume that Italy’s current political instability will necessarily trigger a major crisis in Europe. But the risks remain acute, and a few key developments could yet cause such a crisis to materialize, jeopardizing the eurozone’s survival.
LONDON – Former European Central Bank President Mario Draghi’s resignation as Italy’s prime minister has yet again shone a spotlight on the country’s dysfunctional politics and precarious debt position. But what implications do Italy’s problems and Draghi’s downfall have for the eurozone?
At 150% of GDP, Italy’s public-debt burden is among the world’s largest, and the second-largest among the G20 countries, after Japan (262% of GDP) and ahead of the United States (125% of GDP). Italy’s debt burden is thus up by about 50% since 1990, when it amounted to about 100% of GDP.
There is a clear link between political instability and the accumulation of debt in Italy. Between 1992 and 1995, when the post-World War II party system collapsed, public debt jumped to 119% of GDP. The problem is not just excessive borrowing, but also chronically anemic economic growth, with real annual GDP increasing by less than 1%, on average, since 1990.
LONDON – Former European Central Bank President Mario Draghi’s resignation as Italy’s prime minister has yet again shone a spotlight on the country’s dysfunctional politics and precarious debt position. But what implications do Italy’s problems and Draghi’s downfall have for the eurozone?
At 150% of GDP, Italy’s public-debt burden is among the world’s largest, and the second-largest among the G20 countries, after Japan (262% of GDP) and ahead of the United States (125% of GDP). Italy’s debt burden is thus up by about 50% since 1990, when it amounted to about 100% of GDP.
There is a clear link between political instability and the accumulation of debt in Italy. Between 1992 and 1995, when the post-World War II party system collapsed, public debt jumped to 119% of GDP. The problem is not just excessive borrowing, but also chronically anemic economic growth, with real annual GDP increasing by less than 1%, on average, since 1990.