As the eurozone crisis grinds on into another year, the only substantive change is the name at the center of the storm. Worries about Ireland have largely subsided for the time being, but the situation in Greece is still parlous at best. Now the spotlight is on Italy; amidst a change in government, ongoing wrangling with France and Germany and coordination between multiple central banks, the worry now is whether commercial banks, insurers and investors will have to factor in the risk of a default in yet another country. (For more, check out How Countries Deal With Debt.)
What went so wrong for Italy that the country and its citizens find themselves in this situation? And perhaps more to the point, what can be done to fix matters?
The State of Things
At the risk of oversimplification, Italy is the latest European country to find itself no longer in position of the benefit of the doubt when it comes to its solvency and liquidity. Italy actually has a relatively positive primary budget, but according to the Central Intelligence Agency World Factbook the country has a large public debt – totaling some 120% of GDP or 1.9 trillion euros.
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