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| − | Italy has moved to centre stage in the eurozone debt crisis.
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| − | While Greece generated a lot of noise, it is now seen as a sideshow.
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| − | Greece's debt problems are already widely known and the immediate consequences of a Greek default largely anticipated.
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| − | 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.
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| − | 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.
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| − | And it seems it is Italy that is now seen as the lead candidate for that contagion. But why is this?
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| − | Prudent Italy?
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| − | 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."
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| − | As with Greece, she and other eurozone leaders believe the solution is more government austerity - spending cuts and tax rises - by Rome.
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| − | However, some economists might disagree with her assessment.
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| − | The Italian government's debt, at 118% of GDP (annual economic output) is certainly high, even by European standards.
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| − | But dig a little deeper, and the picture changes.
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| − | Unlike their counterparts in Spain or the Irish Republic, ordinary Italians have not run up huge mortgages, and generally have very little debt.
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| − | 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.
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| − | Continue reading the main story
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| − | Crisis jargon buster
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| − | Use the dropdown for easy-to-understand explanations of key financial terms:
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| − | GDP
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| − | GDP
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| − | 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.
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| − | Glossary in full
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| − | 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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