Why Italy is Lagging Behind?

Italy is making headlines in the past few weeks after the Greek crisis settled down at least temporarily. Part of the PIIGS list of countries, Italy has the second highest debt load at 119 % of the GDP while Greece leads the Euro zone at 142% of GDP.

The population of Italy is about 61 million and the size of the economy is about $1.7 Trillion in 2010. The country is highly divided between the prosperous North and the poor South. The CIA World Factbook notes the following on the Italian economy:

Italy has a diversified industrial economy, which is divided into a developed industrial north, dominated by private companies, and a less-developed, welfare-dependent, agricultural south, with high unemployment. The Italian economy is driven in large part by the manufacture of high-quality consumer goods produced by small and medium-sized enterprises, many of them family owned. Italy also has a sizable underground economy, which by some estimates accounts for as much as 15% of GDP.

Italy lags other European nations in many areas. The following are some of the reasons why Italy finds itself in the current fiscal crisis situation:

Source: Italy: Selected Issues, IMF, July 2011

Update:

1. Currently Italy spends $3.6 billion annually on a fleet 86,000 official cars. Under a new law, only the President and four other national leaders will get high performance cars courtesy of the state. (Source: Bloomberg BusinessWeek)

2. Italian lawmakers are among the highest paid politicians in Europe. In 2010, members of the lower house earned an average gross salary of more than $196K which is nearly double of that of U.K. lawmakers’ salary. In addition, politicians in Italy get free lodgings in Rome, flights and even taxpayer-subsidized haircuts. (Source: The Wall Street Journal)

Related ETF:
iShares MSCI Italy Index (EWI)

Disclosure: Long EWI

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