[LINK] "Italy Leans While Greece Tumbles"

[rfmcdonald]

Lorenzo Totaro and Vernon Silver wrote in Bloomberg Businessweek about the factors that have kept the country from following Greece. A strong industrial base and low levels of household debt matter.

Viewed from Berlin or London, the financial woes of Italy and Greece can look dangerously similar. Both sit on mountains of public debt and suffer from double-digit unemployment. So why hasn’t Italy had to shutter banks, submit to austerity measures in return for emergency loans, and contemplate an exit from the euro?

For now Italy is chugging along, paying its debts and selling bonds. Its benchmark stock index is up 25 percent this year. It’s emerging from a record recession even as Greece enters a new slump after a brief rebound in 2014. Rome-based Eni, Europe’s No. 4 oil company, is pumping 1.7 million barrels per day globally and says output will keep rising. Finmeccanica sells helicopters to corporations and armed forces from the U.K. to China. Carnival cruise liners are made in Fincantieri’s Trieste shipyard. Italian luxury goods, from Fendi to Ferrari, are at the top of consumer shopping lists. Among European manufacturers, Italy trails only Germany in production.

The Greeks? They’ve got “tourism and shipping and little else,” says Marc Ostwald, a fixed income strategist at ADM Investor Service in London. Greek exports fell 7.5 percent in the first quarter, while Italy’s rose more than 3 percent. Tourism in Italy generated about €34 billion ($37.1 billion) last year, almost triple what it did in Greece.

With 60 million residents, Italy is more than five times as populous as Greece. History makes a difference, too. Rebuilding from World War II, Italy set off on the Dolce Vita boom years, popularizing the Vespa scooter and making a mark in international design. Nutella, a nut-based chocolate spread introduced after the war, had annual sales of €8.4 billion last year, making the Ferrero family one of Italy’s richest. Greece, by contrast, went from government by junta in the 1960s and 1970s to a republic run by a political elite and a bloated government in the 1980s. Cutting its civil service and pension costs down to an appropriate size lies at the heart of the struggle between Greece and Europe on economic reform.

Italy’s strength as an industrial exporter has provided stability, helping the country build up gold reserves of $90 billion—the world’s third-biggest stash after the U.S. and Germany and more than 20 times what Greece holds. Just a single Italian bank needed a public bailout after the 2008 crisis, even as dozens of lenders in northern Europe had to dip into state coffers to stay open.