I believe what is happening in Italy these very days is a milestone in the post-World War II history of the Western world, perhaps the true beginning of what XXI century will be like.
Our country, our national community, is addressing a huge challenge managing its sovereign debt. Italy enjoys in a special degree a combination of conditions that all Western developed national economies share. This puts us at the forefront of how the Western world can and will address its sovereign debt challenge.
Here are the conditions: Italy’s sovereign debt is the third largest in the world; sovereign debt is based on borrowing against greater future wealth; greater future wealth requires wealth growth; Italy’s growth has long been among the lowest in the world.
I believe the last few dozen years, up and through the 2007 crisis in Western developed economies, are really a long story of coming to terms with the notion that these economies’ sovereign debt has outgrown their ability to serve it and manage it by growing wealthier – or by providing financial return equivalents to economic wealth growth.
The global economic and financial community has been able to manage one very large economy struggling with huge debt and tiny growth for many years: Japan. This was because others appeared to be growing – and finance appeared to provide adequate returns at reasonable risk. After 2007, Western developed economies and fast-growing economies outside the West have all shown ever more clearly that it will be extremely difficult to grow out of deepening sovereign debt, while this very debt grows to rescue financial institutions, economies, businesses and communities.
Now that Italy is becoming a second Japan at the heart of Europe, we are also turning into a test bed of how all other Western developed economies can, and very likely will, have to manage an explicit or implicit sovereign debt default. The first phase of this test took place in the last few weeks: global political, economic and other institutions have focused on influencing Italy’s politics to encourage our government to start addressing this problem. This is precisely what we are doing now as a national community and body politic.
I do hope the next phases will include Italy addressing both its specific problems and more general problems it shares with Western developed economies and with many others – from rule of law to ease of doing business, from social mobility to equity and justice.
I am optimistic some of the solutions we will come up with, with our fellow countries’ support, will be effective. I am optimistic some will be more effective than some of the solutions the global financial consensus has been recommending or imposing to smaller high debt countries over the last few decades.
In the end, this may be the one chance Italy has to devote its creative resources, together with its wealth, to shaping the future of the Western world, and so of the whole world, in the XXI century. A major feat and role, that ironically comes within our medium-sized country reach just because of the relative size of our debt – and possibly of our natural, cultural and artistic resources, rather than the smaller relative size of our manufacturing and of our finance.