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Why has Italy stopped spending?

Wednesday, December 03, 2014 - 02:27

Much-dreaded deflation appears to be influencing shoppers in parts of the euro zone. As Hayley Platt reports, there are signs Italians are hoarding what money they have and cutting back on basic purchases.

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Market traders often resort to special offers to shift stock. But why "Buy One, Get One free" if the item in question might be cheaper next week? That's the problem with deflation of course and there are signs of it in Italy. This summer, consumer prices fell on a year-on-year basis for the first time in half a century. They've hardly moved since and traders are blaming the politicians. (SOUNDBITE) (Italian) STALLHOLDER DANIELE SAYING: "It's another revolving government, that is trying to fill state coffers to stay in Europe and make themselves look good. They are killing us like all the others did." It's a depressing spiral - falling prices eat into company profits, that leads to pay cuts and job losses, further suppressing demand. Economist Giuseppe Di Taranto believes Italy is at a turning point. (SOUNDBITE) (Italian) LUISS ECONOMIST, GIUSEPPE DI TARANTO, SAYING: "We are still in a critical phase because deflation has hit our country particularly hard. We really have a very low inflation rate. The average is 0.3 per cent, for Germany 0.5 per cent. For us it's 0.2. The problem is poor consumer demand." The euro zone's third biggest economy is not alone. The whole bloc is at risk. Prices have fallen in Spain for the past five months - in Greece it's been happening for 20 months, due to cuts in salaries and state welfare. But Italy is causing the most concern. (SOUNDBITE) (Italian) LUISS ECONOMIST, GIUSEPPE DI TARANTO, SAYING: "I don't think Italians deserve this economic crisis. We have to make reforms, but some reforms also have to be made in Brussels. For years, it's been said that the ECB must be the lender of last resort, but for twenty years this hasn't happened." Italians may be known for their style - but they're also big savers. They have fewer credit cards per person than any other euro zone country, apart from Slovakia. Even houses are often bought with a lump-sum rather than a mortgage. Marshall Gittler is from Iron FX. (SOUNDBITE) (English): MARSHALL GITTLER, HEAD OF GLOBAL FX STRATEGY, IRON FX, SAYING: "Even 'though the government is trying modest reforms, the people are just digging in their heels against it. So I'm really not very hopeful for any big surge in Italian growth by any means." Italy's other problem is its high-debt. Without rising prices the fixed interest on sovereign bonds becomes harder to pay. That could potentially reignite the sort of investor panic that set of the euro zone debt crisis four years ago. Now that wouldn't help anyone - Rome's stall holders included.

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Why has Italy stopped spending?

Wednesday, December 03, 2014 - 02:27