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European economic crisis: Why Italy is seen as too big to bail out

While Italy has a fairly low budget deficit, structural issues such as low productivity have resulted in an economic crisis. Its public debt, at 118 percent of GDP, is one of the highest in Europe.

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Recently a prominent Italian entrepreneur, Emma Marcegaglia, described the early 2000s as “the lost decade” for the economy. Mastrobuoni, who has coauthored a book on the subject, blames the lack of growth on the rigidity of the labor market, which she describes as having a double standard.

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“On one hand there are over-protected old employees, who are not urged to be productive in any way," she says. "On the other hand, there are young workers, tied to temporary contracts with no career prospective.”

Traditionally, Italian families have been big savers, thus the country has a low private debt. Yet its public debt, at 118 percent of GDP, is one of the eurozone's highest, mostly built in the 1980s by a series of governments that implemented huge public spending they could not afford.

Under the socialist government of Bettino Craxi (1983-87), for example, public workers could retire as early as 35. After a series of corruption scandals, Craxi left the country to avoid prosecution and died in exile in 2000.

Since then, governments of all colors vowed to curb the public debt, but few succeeded. “All they managed to do in order to reduce the debt is to raise taxes,” says Mastrobuoni.

The economic journalist doesn't share France's and Germany's apparent enthusiasm over Berlusconi's announced reforms. “The government's plan has no credibility, for keeping raising taxes alone doesn't help," she says, advocating instead moves toward a more free-market capitalist system. "What we need is liberalizations.”

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