Italy, Europe’s third-largest economy, has contracted for 11 quarters since 2007. GDP fell 0.7 percent in the second quarter of this year; the IMF expects output to decline 1.9 percent in 2012 and 0.29 percent in 2013. Quarterly growth has averaged zero in the past decade, compared with an average rate of 0.37 percent in Spain.

What else is troubling Italy?

The lack of growth is being compounded by a rapidly growing shadow economy. The black market is ~16.5% of GDP; criminal activity is another 1% — for a total of 400 billion-euro shadow economy.


Click to enlarge:

All charts via Bloomberg BRIEF


More charts are after the jump  . . .





Bloomberg BRIEF
August 7, 2012

Category: Data Analysis, Economy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “Italian Crisis Monitor”

  1. pintelho says:

    I know hindsight is 20/20…but if I were one of them bankers or bond analysts… I would be trying to figure out over the last 5 years if I would want to lend Italy any money in a maturity of less than 5 years.

    And if I had the benefit of 1-2 years of data starting in 2007 then over the last few years, I would certainly be crazy to lend them money.

    Yet…these bankers are the ones asking for their principle back…

    They took the risk of lending it to Italy in the 1st place…

    I bet if you take this chart back further than 5 years, Italy would still fit into the “Sub-Prime” borrower segment of the sovereign population..

    And banks still lent them money…so if the bank made a bad decision they should take the risk the assumed in the first place…

    It isn’t the sovereigns that need a bailout it is the banks who want the bailout…the Sovereigns want/need to claim bankruptcy.

  2. Winston says:

    That shadow economy is a dangerous animal. Like today’sdrug trade and the age of prohibition in the United States – mainstream economies become reliant on the shadow economy if the mainstream system remains broken for an extended length of time.

  3. dougc says:

    The first time TBTF was instituted was during the Savings and loan crisis in the 1980′s, the reasoning was that bankruptcy would affect the major depositors and bond holders, they happened to be the Saudis and other ME countries. The result of bankrupty might be the stoppage of oil sales. I think a similair situation might be occuring now. Yes soverigns need to claim bankruptcy but can they.


    BR: Your TBTF premise is incorrect — the S&L banks were allowed to fail, the payouts were insurance, not bailouts.

  4. MTstiles says:

    I was browsing the European press this morning and I came across an OpEd in the Frankfurter Rundschau. It is shocking. If the Germans are at a point where this type of “solution” actually gets written, edited and into print, I really don’t see how Germany is going to lead any serious solution.

    “And yet an argument must be demystified. Who determines the interest rate for Italy or Spain is the right one? The market? So the banks, dealers and investors? Had they not only made a mistake and then the terrific recent banking crisis and then the euro crisis made possible because they gave too little interest for money? It is quite possible that in their anxiety, the euro zone fail, err again and much to demand high interest rates and thus bring about only the failure of the monetary union. Is not it wiser to leave central bankers determine the interest, instead of making wealth and jobs dependent on the whims of speculators?”,1472602,16763696.html

  5. SecondLook says:

    I think there is some major misconceptions about the “black market” (Eeconomists that study this generally prefer to call it the informal economy).

    A natural assumption is that is mostly illegal activities, when in fact, it constitutes all transactions that aren’t reported to the government for tax purposes. From tips, and other cash events that aren’t reported, or under-reported, to bartering – a dentist does some work for a carpenter that builds him some shelving in exchange – and so on.
    Along with of course, private gambling (does anyone report the money that they make from the guy’s poker games?), to the more obvious soft “criminal” acts: prostitution, drugs, loan sharking, etc.

    Estimates for the United States range from 6 to 9% of the GDP fall into the informal economy. Every country has this hidden aspect of GDP. Some estimates might surprise people; Germany for example is believed to have nearly 20% of their economy, under the table so speak. By the way, the numbers for Italy are too low, most studies indicate about 25-30% of the economy isn’t reported

    This informal economy, and how invisible it is to conventional thinking, distorts exactly how a country is faring. Because of it, household incomes in a lot of countries are better than they appear, and could explain how people seem to managing more decently than you would expect from the official numbers.

    The informal e

  6. JimRino says:

    Austrian Economics seems to be failing in Italy.

  7. MTstiles says:

    I just noticed that I posted the google translation. Here is a better one from the Frankfurter Rundschau.

    “…we should question the capacity of markets to determine the rates of interest for sovereign borrowing, especially in the context of the major errors made in recent years by investors who failed to notice the onset of the crisis –
    Would it not be smarter to allow central banks to determine these rates of interest, instead of giving speculators’ whims free reign over prosperity and employment?”

    Talk about moral hazard.

  8. Frwip says:


    States borrowing directly from their central banks were the rule in Europe up until the 70s. Nothing shocking there.

  9. MTstiles says:


    Up until the 70′s, Europe was part of the Bretton Woods system, which was essentially a gold standard.

    The translation is vague, but within the context of the article it is clear that the author is trying to make two points based upon the flawed assumption that speculators and investors are somehow able to set bond prices in the same way that the Fed sets overnight rates. The author then argues that since speculators and investors did not anticipate the 2008 crisis, we should not trust them to set bond prices.

    As I read it, the German author thinks individual traders can somehow collude to set a bond price. While this is a ridiculous idea, I think Germans really believe it. I have often wondered why Merkel and her aides say that the markets are wrong when pressed about rising yields.

    Long-term borrowing costs can only be manipulated if you can corner the bond market. During Bretton woods, you might be able to do this, but not in a fiat system.

  10. dougc says:

    BR: You are correct the depositors were declared TBTF. Regardless the Saudis were protected from losses and the question of whether this policy is guiding or policies today is relevant.

  11. dougc says:

    Ponder this , if the Saudis decided that they would no longer accept dollars for oil but only EUROs or Chinese Yuan what would happen to our dollar’s reserve status? The resultant dollar collapse and increased oil prices would cause inflation, recession and a significant increase in financing our deficits.