The newest economic trouble spot: Italy

Ilona Staller, better known as the former porn star Cicciolina in Italy, served as a lawmaker of the Partito Radicale in the Chamber of Deputy, her country’s lower house, for five years from 1987. When she turned 60 in September this year, she became eligible to receive 39,000 euros per year in pension. The annual pay for Italian politicians is 1.3 billion euros a year. This shows how much the Italian government splurges on its politicians.

Italy, the descendant of the Roman Empire, has emerged as a new hotspot of the global economic crisis given its rising risk of default. The yield on 10-year government bonds surpassed 7 percent, a signal of risk. Greece, Ireland and Portugal asked for a bailout 17 to 91 days after their bond yields exceeded 7 percent. A crisis in Italy, which is the eurozone`s third-largest economy after Germany and France, dragged down stock prices in Europe and the U.S. on Wednesday and in Asia including Korea, Japan, and China on Thursday.

Italy’s collapse was caused by deficits in national coffers resulting from the spending spree of the Italian government and politicians, plummeting economic growth, high unemployment, and out-of-control political leadership. The country`s sovereign debt is 1.9 trillion euros and the ratio of sovereign debts to GDP stands at 118 percent. Some say Italy is not “too big to fail,” but “too big to bail out.” Its economic growth forecast for this year is 0.6 percent and 0.3 percent next year. Italy cannot expect external support to resolve its problem without tackling its fiscal deficit, raising growth, and eliminating political turmoil.

Italy and Korea have diametrically opposed economic situations. Korea’s sovereign debt-to-GDP ratio is 35 percent, or less than a third of Italy’s. Fitch downgraded the sovereign ratings of many countries while it upgraded Korea’s credit outlook because they valued the country`s fiscal strength. Overconfidence in financial strength is ill-advised but excessive underestimation is not desirable, either. One fear, however, is that Korea is moving toward the direction that Italy has gone in many aspects. It is hard to make meaningful achievements while the wrong direction can ruin everything in the blink of an eye.

Editorial Writer Kwon Sun-hwal (shkwon@donga.com)