Italy is just like Spain, just a bit more Catholic. That may seem like an obvious statement in religious terms after a steep fall in observance across Spain and when the Vatican City remains the home of the Catholic leader. Yet this was not intended as a religious observation, but an economic one.
The prevailing view is that Italy’s economy is safer than Spain’s. After six months of repenting for its sins and self-inflicted pain Italy will more than satisfy strict EU debt rules.
Mario Monti, the softly spoken eurocrat who took over as prime minister from Silvio Berlusconi, has won plaudits from the high priests of austerity in Brussels for whipping a reluctant parliamant into submission and acquiescence.
In terms of government spending, Monti’s plan has secured the desired effect. While Italy’s debt rose last year to 120% of output, the annual deficit fell to 3.9%. It should come under the 3% target this year.
However, the achievement is no miracle. Unlike most EU countries, including the UK, Italy has simply switched off a vast array of government spending. To take the heat off central government, much of the austerity is being imposed by regions and local municipalities.
The extent of the spending cuts and tax rises can now be seen in the wider economy and show how a short-term debt victory has clearly become a long-term economic disaster.