Monday, September 24, 2012

24/9/2012: Italy's debt overhang effect

Via @FGoria on twitter, this chart on Italy's potential GDP and output gap:
Shows brilliantly the cost of Italy's public debt overhang as a steadily falling potential GDP growth and sustained structural recession since ca 1990-1992. Better yet, shows that even cheap liquidity in the naughties failed to produce any real effect on the economy.

Now, keep in mind, Italy is suffering solely from the Government debt overhang, with relatively benign debt levels on household and corporate balancesheets, and with relatively functioning banking system.

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