Rating: 7.2 (AA-)
italy
negative outlook
Transparency and Accountability
Public Sector Fiscal Policy
5.9
Monetary Policy
5.9
Social Cohesion
8.6
Capital Markets and Financial Risk
10
8
4
7.2
2
7.4
• Flexible political system able to cope with crises
2
4
6 6.1
• Broad and deep revenue base • Strong tradition of rule of law
6.9
6
• Traditionally high personal savings rate
• Modest primary surpluses
7.7
6.6
• High per capita income
• Dynamic small and medium enterprise (SME) sector
Rule of Law
Economic Fundamentals
Strengths:
8 10
Future Resources
• Highly developed social safety net
Weaknesses: 7.2
7.7
External Sector 8.0
7.2
Strategic Capacity
7.2
Crisis Management
• High debt-to-revenue ratio
Implementation
• World’s third largest public sector debt • Ongoing massive refinancing needs
Adaptability
7.2 Macroeconomic Indicators
• High government debt-togross domestic product (GDP) ratio
Forward-Looking Indicators 7.2
• Poor growth for more than 10 years • Fiscal austerity exacerbating recessionary tendencies
Summary Italy is among the world’s richest countries, both in terms of accumulated assets and ongoing income generation. But since Italy joined the eurozone as a founding member in 1999, the Italian economy has, on average, underperformed. One explanation for this underperformance is the loss of Italy-specific exchange rate flexibility. In the pre-eurozone period, an economic crisis inevitably triggered a significant depreciation of the Italian lira, the country’s former currency. Lira depreciation allowed the Italian economy to adjust relative prices, vis-à-vis the world, through the exchange rate rather than solely through structural reform. This enabled Italian governments to undertake major structural reforms, but at a pace in tune with the ability of its
• Significant contingent liabilities emanating from the financial system • Significant contingent liabilities emanating from eurozone bailout programs
1