In spite of its reputation for chaotic governance, Italy last week met what might have become a severe debt crisis with speed and aplomb.
Italy has the euro zone’s third-largest economy, ranking only behind Germany and France. Its national debt — an estimated $2.7 trillion — ranks high in European terms. Its growth rate, 1.3 percent in 2010, is low. Last week, the interest it has to pay to borrow went up, while its stock market dipped.
That raised fears that Italy would go the route of Greece, Ireland, and Portugal and require a bailout to avoid defaulting on its debt. Italy’s ever-shaky political situation, with Prime Minister Silvio Berlusconi in trouble as usual in the courts, didn’t help the situation. Talk of possible early elections added to the uncertainty.
Mr. Berlusconi and the Italian government moved fast. Opposition parties cooperated in the face of disaster. The Italian Senate passed a fast-track austerity bill that increased budget cuts to $99 billion by 2014. A bill passed by the lower house cut Italy’s budget deficit in half through tax increases, cuts in federal payments to regional and local governments, an increase in fees for public health care, and cuts to high-level pensions. The retirement age was raised.
Italy’s financial situation was still on the agenda at a debt summit meeting of European Union leaders in Brussels this week. But the crisis that Italy’s potential collapse represented is basically over.
America’s life in the global financial world was made easier by Italy’s swift, decisive response to its problems. As it faces its own debt crisis, Washington could learn from Rome’s example.