The leaked copy of the Italy “country-specific report” from the European Commission which we got a hold of before its official publication Wednesday contains lots of warnings about tax evasion and the black economy. But with Spain and Greece dominating headlines these days, one thing that stands out from reading the report is that Italy is not Spain or Greece.
Both Spain and Greece are struggling mightily to get their budget deficits under control, and some analysts argue they’re failing because of a “debt spiral” where their governments attempt to close shortfalls by instituting severe austerity measures – thus killing economic growth and causing bigger deficits.
The European Commission report (which we’re posting online here) shows how much better Italy’s situation is when it comes to its budgetary situation. Not only is Italy not dealing with huge deficits like Spain and Greece; last year it actually had a primary budget surplus – in other words, it took in more money than it spent, if you don’t count debt payments.
That’s a significant difference, and may be one of the main reasons Italy appears to be decoupling from Spain, as our friends and rivals over at Reuters noted in a Tweet this morning: the spread between Spanish and Italian 10-year bonds have shifted a pretty dramatic 250 basis points over the course of the year.