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/4/11 Druckversion - Living 'La Vita Bella': Italians Leave Fears of Debt Crisis to O

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10/19/2011 06:19 PM

Living 'La Vita Bella'

Italians Leave Fears of Debt Crisis to OthersB Aleander Smoltck

For the financial markets, Ital's debts are a disaster waiting to happen. But after living with the

problem for hundreds of ears, most Italians would seem to disagree. The insist that no other

countr knows as much about getting in and out of debt -- and that man of their fiscal strengths

go unappreciated.

After so many centuries, the secret door sticks a bit. But it still exists, hidden behind an image of

Italy in the "Hall of Maps" of Florence's Palazzo Vecchio. "Eccolo," says Francesca, the custodian. "It

happened here."

This is where it all began. Starting sometime in the mid-14th century, the leather-bound ledgers thecity of Florence used to record its debts were kept hidden in this secret place. Someone in the city

government had apparently hit upon the idea of using the citizens' money to fund the next military

campaign. After Florence's (supposedly certain) victory, the city would simply repay the debts -- and

with interest.

The wealthy Florentines, who were required to buy their city's debt securities, had the ir names

recorded in the ledgers at Palazzo Vecchio. But, for them, paying up was still preferable to putting

on their own suits of armor to defend the city. Besides, they could also sell these new debt

securities to others.

The arrangement marked the beginnings of a system of state borrowing and trading in government

bonds. Today's $50-trillion (36-trillion) market in government bonds, which is now forcinggovernments to their knees, originated in Italy -- first in Venice and, later, in the hills of Tuscany.

The concept of debt securities quickly caught on, and soon the cities of Siena, Florence, Pisa and

Venice were hopelessly in debt -- a condition that persists to this day.

Inheriting the Bill

"We currently pay more in interest than we spend on our schools," says Matteo Renzi, who makes

the Palazzo Vecchio his home as the mayor of Florence. Renzi, only 36, was voted into office on the

strength of his reputation as a "bulldozer" -- and his pledge to finally clean house in Florence. He is

the youthful face of his party, the center-left Democratic Party (PD), a mayor who wears jeans and

has Apple stickers on his oak desk. "Our fathers walked into the restaurant, and we inherited the

bill."

The bill -- at least for his city of Florence -- currently amounts to 518 million.

Many see Florence as the embodiment of the euro-zone nightmare, with massive government debt,

close to zero growth and a government led by a man who has been charged with tax evasion.

No other European country, except Greece, is as deeply indebted as Italy. The country's debt level

has reached 120.3 percent of its gross domestic product (GDP). At the same time, Italy has one of

the lowest birth rates in the Western world, which means that there w ill be fewer and fewer people

to pay off its debts in the future.

'It Was Like a Drug'