Contributed Content (0)
Ask a Question
from 1:50 on unit labor cost are compared. It is said that German unit labor cost are lower than those of other countries. But those are reletive unit labor cost, e.g. the graph shows the development of it relatively to a base value in 1999. Absolute unit labor cost are still higher in Germany than in the other countries shown, are they not?
Why you think that Debt/GDP starts to be dangerous at around 90% and Italy started its crisis only last year even if its Debt/GDP ratio is >100% since 1992?
To the first point: There is a NBER paper by Reinhart & Rogoff (http://www.nber.org/papers/w15639) where they evaluate data on growth and sovereign debt and find a statistical correlation between a sovereign debt / gdp ratio in excess of 90% and declining growth rates.
Rishi, it's not true to say that "nothing happens" - rather: nothing dramatic happens.
Reinhart & Rogoff results still show that increasing debt lowers growth, there just isn't a sharp drop-off beyond 90% that their original (faulty) analysis showed.
It was eventually discovered that their hypothesis was incorrect due to incorrect coding. And nothing happens when Debt-gdp ratio crosses 90%.
Italy is a special case with a unique histroy and interest groups as you can see with Berlusconi being sentenced and still popular. Political instability is also an important constant factor in Italy, remember the country will have its 63rd government in 68 years since WWII.
As I've understood, crisis situation in Italy is not the same than in Greece. Italian government is more responsible, but nevertheless...
Please, before talking about the Italian situation, read this paper.
By the way, the Italian situation has a lot to do with the private debt, much more than the public debt. Italy always had a high public debt, but never suffered so much. The Italian (and Spanish, Greek, Portuguese, French and so on) problem, is the Euro.