Belfast Telegraph

Economy Watch: view from Dublin

By Dan O'Brien

Nobody can doubt the significance of the Greek crisis for the European order as it has existed since the middle of the last century. The damage it has caused is huge. The seeming unending nature of the crisis, and the speed at which it continues to evolve, makes it difficult to stand back and put it all in any historical perspective.

It can, however, be said with a high degree of confidence that if Greece ends up out of the euro, it will be a disaster for Greece and a hammer blow to the single currency.

But while Grexit is unlikely to trigger an immediate unravelling of the euro, not least owing to the firewalls that have been put in place, it would highlight the other weak link economies in the currency, and make those links even weaker by signalling that they too could be pushed out of the euro.

The weakest link of all is Italy.

There are a frightening number of similarities between the two countries on either side of the Adriatic in terms of inefficient and corrupt politics and public administration, chronically weak economic fundamentals and huge (and rising) public debt.

The biggest difference between the two countries is their relative size. Greece, for all its intractable woes, accounts for just one fiftieth of the eurozone economy. Italy's economy, the ninth biggest in the world, is almost 10 times the size.

If Italy gets into trouble, it will be Greece times 10. If the model of inter-state cooperation is being stretched to its limits by the Greece, an Italian crisis would blow it apart.

There are many reasons to fear that Italy is growing Greek. There are very few reasons to believe that the country will turn itself around.

Let's start with an anecdote. Living in Italy in the 1990s, the first time I was in Rome's second airport was to pick up a friend on the day Ireland played Italy in the 1994 World Cup. Arriving into the same airport last week, it was striking how unchanged it was 21 years on - there has been next to no upgrading or investment and it retains the feel a small provincial airport, not one in the capital of a G7 nation.

That very much reflects a wider truth. In the early 1990s, Italy was everywhere visibly more prosperous than Ireland. Now it is the other way around. That is because the economy simply hasn't grown. Since 2008 it has been shrinking almost without interruption.

Today, per capita GDP is back at the levels recorded at the turn of the century. That is identical to Greece, even if the intervening period has had many more ups and downs for Greece.

Belfast Telegraph

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