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-	The Greek PM has warned the nation of a collapse in living standards if MPs fail to pass an unpopular austerity bill demanded in return for a 130bn-euro ($170bn; �110bn) bailout.	+	Italy has moved to centre stage in the eurozone debt crisis.
-	In a TV address, Lucas Papademos said Greece was "just a breath away from Ground Zero".	+	While Greece generated a lot of noise, it is now seen as a sideshow.
-	The cabinet has approved the measures but five government ministers resigned.	+	Greece's debt problems are already widely known and the immediate consequences of a Greek default largely anticipated.
-	Unions are holding a 48-hour strike, and thousands of protesters rallied in central Athens against the measures.	+	Moreover, the size of the Greek economy is small enough that the direct damage, if Greece stopped paying its debts, should be quite manageable for the eurozone.
-	Riot police were on standby after clashes on Friday, but the demonstrations were mostly peaceful.	+	Instead, the big fear is "contagion" - that a Greek default could trigger a financial catastrophe for other, much bigger economies - in particular Italy and Spain.
-	The austerity measures are being demanded by the eurozone and IMF - they must now be passed by the Greek parliament and approved by European finance ministers.	+	And it seems it is Italy that is now seen as the lead candidate for that contagion. But why is this?
		+	Prudent Italy?
-	Some MPs from the governing parties are expected to vote against the bill, the BBC's Mark Lowen in Athens reports.	+	According to Germany's Chancellor, Angela Merkel, "Italy has great economic strength, but Italy does also have a very high level of debt and that has to be reduced in a credible way in the years ahead."
-	But analysts say the package should still have enough support in parliament, because Pasok, the largest party, and its coalition ally New Democracy account for more than 230 deputies out of a total of 300.	+	As with Greece, she and other eurozone leaders believe the solution is more government austerity - spending cuts and tax rises - by Rome.
-	Catastrophe fear	+
-	Mr Papademos said the measures would "decide the country's future" and enable it to stay inside the euro.	+	However, some economists might disagree with her assessment.
-	Continue reading the main story	+
-	What went wrong in Greece?	+
-	An old drachma note and a euro note	+	The Italian government's debt, at 118% of GDP (annual economic output) is certainly high, even by European standards.
-	Greece's economic reforms, which led to it abandoning the drachma as its currency in favour of the euro in 2002, made it easier for the country to borrow money.	+
-	The opening ceremony at the Athens Olympics	+	But dig a little deeper, and the picture changes.
-	Greece went on a big, debt-funded spending spree, including paying for high-profile projects such as the 2004 Athens Olympics, which went well over its budget.	+
-	A defunct restaurant for sale in central Athens	+	Unlike their counterparts in Spain or the Irish Republic, ordinary Italians have not run up huge mortgages, and generally have very little debt.
-	The country was hit by the downturn, which meant it had to spend more on benefits and received less in taxes. There were also doubts about the accuracy of its economic statistics.	+
-	A man with a bag of coins walks past the headquarters of the Bank of Greece	+	That means that according to the Bank of International Settlements Italy as a country - not just a government - is not actually terribly indebted compared with other big economies such as France, Canada or the UK.
-	Greece's economic problems meant lenders started charging higher interest rates to lend it money. Widespread tax evasion also hit the government's coffers.	+	Continue reading the main story
-		+	Crisis jargon buster
-	Workers in a rally led by the PAME union in Athens on 22 April 2010	+	Use the dropdown for easy-to-understand explanations of key financial terms:
-	There have been demonstrations against the government's austerity measures to deal with its debt, such as cuts to public sector pay and pensions, reduced benefits and increased taxes.	+	GDP
-		+	GDP
-	Greek Prime Minister George Papandreou at an EU summit in Brussels on 26 March 2010	+	Gross domestic product. A measure of economic activity in a country, namely of all the services and goods produced in a year. There are three main ways of calculating GDP - through output, through income and through expenditure.
-	The EU, IMF and European Central Bank agreed 229bn euros ($300bn; �190bn) of rescue loans for Greece. Prime Minister George Papandreou quit in November 2011 after trying to call a referendum.	+	Glossary in full
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-	Greece's problems have made investors nervous, which has made it more expensive for other European countries such as Portugal to borrow money.	+
-	Eurozone leaders are worried that if Greece were to default, and even leave the euro, it would cause a major financial crisis that could spread to much bigger economies such as Italy and Spain.	+
-		+
-	Lucas Papademos	+
-	Under Prime Minister Lucas Papademos, Greece is trying to negotiate a big write-off of private debts and secure a second bail-out of 130bn euros ($170bn, �80bn) before a 20 March deadline.	+
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-	"The social cost of this programme is limited in comparison with the economic and social catastrophe that would follow if we didn't adopt it," he said.	+
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-	Savings would be lost, the government would be unable to pay wages or salaries, and imports of fuel, medicine and machinery would be disrupted, he added.	+
-		+
-	Earlier, Greek conservative leader Antonis Samaras said all his party's MPs must vote in favour of the bailout law.	+
-		+
-	Mr Samaras, whose New Democracy party is a member of the governing coalition, said any rebels would face being dropped as parliamentary candidates.	+
-		+
-	Deputy Foreign Minister Mariliza Xenogiannakopoulou, who quit on Friday afternoon, is the most senior defection so far.	+
-		+
-	Her Pasok party, the largest in the coalition, also suffered the loss of a deputy labour minister on Thursday.	+
-		+
-	The austerity cuts include:	+
-		+
-	* 15,000 public-sector job cuts	+
-	* liberalisation of labour laws	+
-	* lowering the minimum wage by 20% from 751 euros a month to 600 euros	+
-	* negotiating a debt write-off with banks.	+
-		+
-	These were presented to a eurozone ministers in Brussels on Thursday evening.	+
-	But they want a further 325m euros in savings for this year and also insist that Greek leaders give "strong political assurances" on the implementation of the packages.	+	Moreover, the large debts of the Italian government are nothing new. It has got by just fine with a debt ratio over 100% of its GDP ever since 1991.

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Revision as of 15:14, 15 January 2013

Italy has moved to centre stage in the eurozone debt crisis.

While Greece generated a lot of noise, it is now seen as a sideshow.

Greece's debt problems are already widely known and the immediate consequences of a Greek default largely anticipated.

Moreover, the size of the Greek economy is small enough that the direct damage, if Greece stopped paying its debts, should be quite manageable for the eurozone.

Instead, the big fear is "contagion" - that a Greek default could trigger a financial catastrophe for other, much bigger economies - in particular Italy and Spain.

And it seems it is Italy that is now seen as the lead candidate for that contagion. But why is this? Prudent Italy?

According to Germany's Chancellor, Angela Merkel, "Italy has great economic strength, but Italy does also have a very high level of debt and that has to be reduced in a credible way in the years ahead."

As with Greece, she and other eurozone leaders believe the solution is more government austerity - spending cuts and tax rises - by Rome.

However, some economists might disagree with her assessment.

The Italian government's debt, at 118% of GDP (annual economic output) is certainly high, even by European standards.

But dig a little deeper, and the picture changes.

Unlike their counterparts in Spain or the Irish Republic, ordinary Italians have not run up huge mortgages, and generally have very little debt.

That means that according to the Bank of International Settlements Italy as a country - not just a government - is not actually terribly indebted compared with other big economies such as France, Canada or the UK. Continue reading the main story Crisis jargon buster Use the dropdown for easy-to-understand explanations of key financial terms: GDP GDP Gross domestic product. A measure of economic activity in a country, namely of all the services and goods produced in a year. There are three main ways of calculating GDP - through output, through income and through expenditure. Glossary in full

Moreover, the large debts of the Italian government are nothing new. It has got by just fine with a debt ratio over 100% of its GDP ever since 1991.