Italy is not Greece. But not all the differences are encouraging. Its economy is 10-times bigger. Its €2.3tn public debt is seven-times bigger, which is the largest in the eurozone and fourth largest in the world. Italy is too big too fail and may be too big to save. The question is whether its new government will trigger such a crisis and, if so, what might follow?
So far markets are only slightly nervous. On Monday, yields on 30-year Italian government bonds were just 220 basis points above German levels, with yields of 3.4 per cent. This is far below peak spreads of 467 basis points and peak yields of 7.7 per cent in 2011. Alas, it could get far worse. (See charts.)
According to the European Council on Foreign Relations, in no member state of the EU, bar Greece, did the sense of “cohesion” of individuals with the EU fall more sharply between 2007 and 2017 than in Italy. By the latter year, its ranking on this criterion had tumbled to 23rd of 28 members.