Wednesday, September 21, 2011

Opinion: Last warning for Rome as Italy's credit fizzles

It's the same old story: At first, politicians deny the seriousness of the situation. Then, costs for the disbursement of government bonds rise immensely. A few austerity packages are launched. Then the country is downgraded by a ratings agency. Investors lose confidence in the country, followed by huge increases in government bond interest rates. Politicians hesitate, but then announce they can no longer manage on our own and must resort to the eurozone bailout mechanism.

That's what happened in Greece, Ireland and Portugal. Now, it's Italy's turn. Why should it be different this time?

It must be different this time because at 1900 billion euros, Italy's debt is much bigger than the debt accrued by Greece, Ireland and Portugal. Right now, the eurozone countries' bailout fund is too small to save Italy from bankruptcy. The eurozone nations won't make the necessary resolutions until the beginning of October.

But there does not have to be a bailout yet; Italian Prime Minister Silvio Berlusconi still has the chance to change tack and regain the markets' confidence by really economizing, introducing genuine reform programs and rational, comprehensible policy. What does Berlusconi do? He beats up the messenger of the bad news, the ratings agency. Even the International Monetary Fund (IMF) attested Italy a dismal economic outlook. more