Seb Country Analysis 2009 Italy

Italy SEB MERCHANT BANKING – COUNTRY RISK ANALYSIS

February 2, 2009

Analyst: Rolf Danielsen. Tel : +46 8 763 83 92. E‐mail : [email protected]  

Italy has not participated in the housing and credit boom of its peers but neither has it used recent years’ strong economic tailwinds to restructure its rigid and uncompetitive economy. Burdened by one of the highest government debt levels in the world, many analysts and investors are foreseeing Italy approaching the day of reckoning. 

Country Risk Analysis 1 qÜÉ=ÉÅçåçãó=áë=Üáí=Ü~êÇ=Äó=íÜÉ=ÖäçÄ~ä=Åêáëáë=JJ=~åÇ=íÜÉ=ÇçïåJëäáÇÉ=áë=äáâÉäó=íç= ÅçåíáåìÉK==få=OMMUI=íç=íÜÉ=ëìêéêáëÉ=çÑ=ã~åó=ÉÅçåçãáëíëI=fí~äó=ï~ë=íÜÉ=Ñáêëí=tÉëíÉêå= bìêçéÉ~å=Åçìåíêó=íç=ÄÉ=Üáí=Äó=íÜÉ=ÖäçÄ~ä=Åêáëáë=~åÇ=çÑÑáÅá~ääó=íç=ÉåíÉê=êÉÅÉëëáçåK== _ÉÖáååáåÖ=íÜÉ=óÉ~ê=~í=~=éçëáíáîÉ=åçíÉ=ïáíÜ=MIQB=ÖêçïíÜ=Éèìáî~äÉåí=íç=~å=~ååì~äáòÉÇ= NITB=ÖêçïíÜI=íÜÉ=ëÉÅçåÇ=èì~êíÉê=ëí~íáëíáÅë=Å~ãÉ=áå=ïáíÜ=~=ëäáÖÜí=Ñ~ää=áå=dam=çÑ=MIOBK= qÜ~í=åìãÄÉê=áåÅêÉ~ëÉÇ=íç=~=Çêçé=çÑ=MIVB=áå=íÜÉ=íÜáêÇ=èì~êíÉê=~åÇ=ãçëí=~å~äóëíë=åçï= ÉñéÉÅí=íÜÉ=ëäáÇÉ=íç=Ü~îÉ=ÅçåíáåìÉÇ=ïáíÜ=~=NISB=ÇÉÅêÉ~ëÉ=çÑ=ÉÅçåçãáÅ=~Åíáîáíó=áå=íÜÉ= ä~ëí=èì~êíÉê=çÑ=OMMUK=cçê=íÜÉ=ïÜçäÉ=óÉ~êI=íÜ~í=ïçìäÇ=ëÜêáåâ=íÜÉ=ÉÅçåçãó=Äó=~êçìåÇ= çåÉ=éÉêÅÉåíK==i~íÉëí=áåÇáÅ~íçêë=ëìÖÖÉëí=íÜÉ=ëáíì~íáçå=ã~ó=ÄÉÅçãÉ=ïçêëÉ=ÄÉÑçêÉ= ÖÉííáåÖ=ÄÉííÉêK==få=kçîÉãÄÉêI=áåÇìëíêá~ä=çìíéìí=ï~ë=Ççïå=OIPB=~ÅÅÉäÉê~íáåÖ=íÜÉ= Ççïåíìêå=Ñêçã=~=åÉÖ~íáîÉ=OINB=áå=lÅíçÄÉêI=ã~áåäó=êÉÑäÉÅíáåÖ=íÜÉ=ê~éáÇ=Ñ~ää=çÑ=ã~åó= Éñéçêí=ã~êâÉíëK==cçêÉáÖå=çêÇÉêë=ëäìãéÉÇ=NQB=áå=lÅíçÄÉêJkçîÉãÄÉê=éçáåíáåÖ=íç= ÅçåíáåìÉÇ=áåÇìëíêá~ä=ïÉ~âåÉëë=ÖçáåÖ=áåíç=OMMVK==qÜÉ=áåÇìëíêá~ä=éÉêÑçêã~åÅÉ= áåÇáÅ~íçê=Ñçê=g~åì~êó=ÇêçééÉÇ=ÑìêíÜÉê=íç=POI=ïÉää=ÄÉäçï=íÜÉ=RMJã~êâ=íÜ~í=ëÉé~ê~íÉë= Åçåíê~Åíáçå=Ñêçã=Éñé~åëáçåK==lÄëÉêîÉêë=Ü~îÉ=ÄÉÉå=ëÅ~äáåÖ=Ççïå=íÜÉáê=ÉñéÉÅí~íáçåë= Ñçê=OMMVK==oÉÅÉåí=Éëíáã~íÉë=~êÉ=áå=íÜÉ=ê~åÖÉ=çÑ=~=åÉÖ~íáîÉ=OJPB=ã~âáåÖ=fí~äó=çåÉ=çÑ= Ü~êÇÉëí=Üáí=ÅçìåíêáÉë=áå=bìêçéÉK==tÉ=Éëíáã~íÉ=íÜÉ=ëäìãé=íç=ãçêÉ=íÜ~å=PB=áå=OMMVK== = qÜ~í=Ääçï=ã~ó= ITALY: Government debt/GDP ëÉÉã=ìåÑ~áêK=b~êäáÉê= íÜáë=ÇÉÅ~ÇÉI=fí~äó= 140 ï~íÅÜÉÇ=íÜÉ=ÅêÉÇáí= 120 Ñáå~åÅÉÇ=ÅçåëìãÉê= 100 ~åÇ=ÜçìëáåÖ=Äççã= 80 íÜ~í=íççâ=éä~ÅÉ=áå= 60 ã~åó=çíÜÉê= 40 bìêçéÉ~å=ÅçìåíêáÉë= 1980 1985 1990 1995 2000 2005 2010 ãçëíäó=Ñêçã=íÜÉ= The government debt ratio rose rapidly in the 1980s but ëáÇÉäáåÉI=íÜÉêÉÄó= was reduced again in the run up to the euro entry in 1999. ~îçáÇáåÖ=íÜÉ= çîÉêÜÉ~íáåÖ= 1

This note has benefited from comments from Mats Galvenius, SEB, Client executive. However, any errors or misjudgments remain the sole responsibility of undersigned.

important your attention is drawn to the statement on the back cover of this report which affects your rights.

SEB Merchant Banking Country Risk Analysis February 2, 2009

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SEB Merchant Banking Country Risk Analysis February 2, 2009

ëÅÉå~êáç=Äó=íÜÉ=åÉï=rp=~Çãáåáëíê~íáçåK==få=íÜÉ=ÉîÉåíI=ã~êâÉíë=Ü~îÉ=ÄÉÖìå=íç= ÇáÑÑÉêÉåíá~íÉ=ëÜ~êéÉê=ÄÉíïÉÉå=ÇÉÄíë=çÑ=ÇáÑÑÉêÉåí=bìêçéÉ~å=ëçîÉêÉáÖåëI=áåÅäìÇáåÖ=çÑ= íÜçëÉ=ïáíÜáå=íÜÉ=ÉìêçJòçåÉI=ïáíÜ=fí~äá~å=ÖçîÉêåãÉåí=ÄçåÇë=ÄÉÅçãáåÖ=íÜÉ=ïçêëí= éÉêÑçêãÉêI=ëÉÅçåÇ=íç=dêÉÉÅÉK==qÜÉ=NIR=éÉêÅÉåí~ÖÉ=éçáåí=ÜáÖÜÉê=áåíÉêÉëí=ÅÜ~êÖÉÇ=Äó= áåîÉëíçêë=Ñçê=ÜçäÇáåÖ=ëçîÉêÉáÖå=ÇÉÄí=çÑ=fí~äó=Åçãé~êÉÇ=ïáíÜ=ëçîÉêÉáÖå=ÇÉÄí=çÑ= dÉêã~åó=çÑ=íÜÉ=ë~ãÉ=ã~íìêáíó=áë=çåÉ=éáÉÅÉ=çÑ=ÉîáÇÉåÅÉ=K==eáÖÜÉê=áåíÉêÉëí=ê~íÉë=Ñçê= fí~äó=~åÇ=çíÜÉê=ÑáëÅ~ääó=îìäåÉê~ÄäÉ=ÅçìåíêáÉë=éçêíÉåÇ=íÜÉ=Ç~åÖÉê=çÑ=ê~íÉë=êáëáåÖ=íç=~= äÉîÉä=ïÜÉêÉ=íÜÉó=ÅçìäÇ=íêáÖÖÉê=ìåëìëí~áå~ÄäÉ=ÇÉÄí=Çóå~ãáÅëK==få=ëìÅÜ=ëáíì~íáçåë= ÅçìåíêáÉë=áå=íÜÉ=é~ëí=Ü~îÉ=ÄÉÉå=~ÄäÉ=íç=ÄêÉ~â=çìí=çÑ=íÜÉáê=éêÉÇáÅ~ãÉåí=Äó=ÉåÖáåÉÉêáåÖ= ëìêéêáëÉ=áåÑä~íáçåK=_ÉáåÖ=~=ãÉãÄÉê=çÑ=íÜÉ=ÉìêçJòçåÉI=fí~äó=Å~ååçí=Çç=íÜ~í=çå=áíë=çïåK=== = tÜó=Çç=ã~êâÉíë=í~êÖÉí=fí~äó\==få=OMMVI=ãçëí=ÉìêçJòçåÉ=ÅçìåíêáÉë=ïáää=ÉñéÉêáÉåÅÉ= ÖêçïáåÖ=ÄìÇÖÉí=ÇÉÑáÅáíëI=~åÇ=áå=ëçãÉ=Å~ëÉëI=áåÅäìÇáåÖ=pé~áåI=íÜÉ=ÇÉíÉêáçê~íáçå=ïáää=ÄÉ= ëÜ~êéÉê=íÜ~å=áå=fí~äóK==få=cê~åÅÉI=íÜÉ=ÄìÇÖÉí=ÇÉÑáÅáí=Ñçê=OMMV=áë=ÉñéÉÅíÉÇ=~í=ãçêÉ=íÜ~å= RBLdam=ëäáÖÜíäó=~ÄçîÉ=éêçàÉÅíáçåë=Ñçê=fí~äóK==^äíÜçìÖÜ=íÜÉ=rh=áë=åçí=~=ÉìêçòçåÉJ ãÉãÄÉêI=áí=áë=êÉã~êâ~ÄäÉ=íÜ~í=Öáäíë=Ü~îÉ=åçí=ëìÑÑÉêÉÇ=êÉä~íáîÉ=íç=ÄìåÇë=áå=êÉÅÉåí= ãçåíÜë=ÇÉëéáíÉ=íÜÉ=ëÜ~êé=áåÅêÉ~ëÉ=áå=éêçàÉÅíÉÇ=ÖçîÉêåãÉåí=ÇÉÑáÅáíë=Ñçê=íÜÉ=åÉñí=ÑÉï= óÉ~êë=íç=UBLdam=áåÅäìÇáåÖ=ÑáëÅ~ä=êÉëÅìÉ=é~Åâ~ÖÉë=Ñçê=~áäáåÖ=_êáíáëÜ=Ä~åâëK==få=íÜÉ= Å~ëÉ=çÑ=fí~äóI=Äó=Åçåíê~ëíI=çÄëÉêîÉêë=êÉÖ~êÇ=íÜÉ=Ä~åâáåÖ=ëÉÅíçê=~ë=êÉä~íáîÉäó=ëçìåÇI= í~êåáëÜÉÇ=çåäó=Äó=íÜÉ=êáëâ=çÑ=~=Åçää~éëÉ=áå=`Éåíê~ä=~åÇ=b~ëíÉêå=bìêçéÉI=ïÜÉêÉ=íïç=çÑ= áíë=ä~êÖÉëí=Ä~åâëI=råáÅêÉÇáíç=~åÇ=fåíÉë~I=Ü~îÉ=áåîÉëíÉÇ=ÜÉ~îáäóK==pCmI=íÜÉ=ê~íáåÖ= ~ÖÉåÅóI=Ü~ë=Éëíáã~íÉÇ=íÜÉ=ÅçåíáåÖÉåí=äá~Äáäáíó=çÑ=fí~äá~å=Ä~åâë=íç=íÜÉ=ëçîÉêÉáÖå=~í=NMJ OMB=çÑ=damI=~=êÉ~ëçå~Ääó=ãçÇÉê~íÉ=åìãÄÉê=áå=~å=áåíÉêå~íáçå~ä=Åçãé~êáëçåK== jçêÉçîÉêI=fí~äá~å=ÜçìëÉÜçäÇë=~êÉ=ÅäÉ~êäó=äÉëë=äÉîÉê~ÖÉÇ=íÜ~å=ÜçìëÉÜçäÇë=áå=pé~áåI=íÜÉ= rhI=fêÉä~åÇ=çê=íÜÉ=rpK==cáå~ääó=óÉí=áãéçêí~åíäóI=Ü~îáåÖ=ã~áåí~áåÉÇ=~å=çîÉê~ää= Ä~ä~åÅÉ=áå=áíë=ÉñíÉêå~ä=~ÅÅçìåíë=Ó=ÅìêêÉåí=~ÅÅçìåí=ÇÉÑáÅáíLdam=~êçìåÇ=OJPB=áå=êÉÅÉåí= óÉ~êëI=fí~äó=áë=åçí=ÉñÅÉëëáîÉäó=áåÇÉÄíÉÇ=íç=ÑçêÉáÖå=ÅçìåíêáÉëI=ïÜÉêÉ~ë=íÜÉ=çééçëáíÉ=áë= íêìÉ=Ñçê=íÜÉ=rh=~åÇ=çíÜÉê=éÉÉêëK==_ÉáåÖ=áåÇÉÄíÉÇ=íçï~êÇ=áíë=çïå=éçéìä~íáçå=ê~íÜÉê= íÜ~å=íç=ÑçêÉáÖåÉêëI=ã~ó=ÄÉ=~å=~Çî~åí~ÖÉ=ÉîÉå=íÜçìÖÜ=ÅêçëëJÄçêÇÉê=Å~éáí~ä=ãçÄáäáíó= ìåÇÉêãáåÉë=íÜÉ=~êÖìãÉåíK=

Government Benchmarks Spread to Bunds 3,0 2,5

Greece Ireland

8 - year

2,0

Italy

1,5 1,0 0,5 0,0

UK

France

Spain

-0,5 jan mar Italy, 8 Year, EUR

maj

jul 2008

Spain, 8 Year, EUR

France, 8 Year, EUR

sep Greece, 7 Year, EUR

nov United Kingdom, 8 Year, GBP

jan Ireland, 5 Year, EUR

Source: Reuters EcoWin = 3

SEB Merchant Banking Country Risk Analysis February 2, 2009

Percent

tÉ~â=äçåÖ=íÉêã=éêçëéÉÅíëK==tÜáäÉ=ã~êâÉíë=ã~ó=Ü~îÉ=ÖçííÉå=fí~äó=ïêçåÖ=áå=íÜÉ=ëÜçêí= íÉêã=íÜÉó=ã~ó=ÄÉ=êáÖÜí=áå=íÜÉ=äçåÖÉê=êìåK==oÉ~ëçåë=Ñçê=ÖêçïáåÖ=áåîÉëíçê=ÅçåÅÉêåë= áåÅäìÇÉ== • îÉêó=ïÉ~â=ÇÉãçÖê~éÜáÅë=ïáíÜ=~=ê~éáÇäó=~ÖÉáåÖ=éçéìä~íáçåI==~=ä~êÖÉ=é~êí=çÑ=áí= Ó=áå=é~êíáÅìä~ê=éìÄäáÅ=ÉãéäçóÉÉë=JJ==ÄÉåÉÑáíáåÖ=Ñêçã=~å=çîÉêäó=ÖÉåÉêçìë=Äìí= ìåÇÉêJÑìåÇÉÇ=ëí~íÉ=éÉåëáçå=ëóëíÉã== • ïÉ~â=éêçÇìÅíáîáíó=ÖêçïíÜ=çîÉê=ëÉîÉê~ä=óÉ~êë=ëáåÅÉ=ÉìêçJÉåíêó=~åÇ=~å= çÄëçäÉíÉ=áåÇìëíêó=ëíêìÅíìêÉ=Ä~ëÉÇ=çå=äçï=ï~ÖÉ=~ÅíáîáíáÉë=ëìééçêíÉÇ=Äó=~å= ~êãó=çÑ=íÉãéçê~êó=ïçêâÉêë=Ñêçã=~Äêç~Ç=ã~åó=çÑ=íÜÉã=ïçêâáåÖ=áääÉÖ~ääó=áå= íÜÉ=áåÑçêã~ä=ëÉÅíçêK==^äíÜçìÖÜ=íÜÉêÉ=~êÉ=ÅÉêí~áåäó=ëÉÖãÉåíë=çÑ=fí~äá~å= ÄìëáåÉëëÉëI=áåÅäìÇáåÖ=ã~åó=çÑ=íÜÉ=pjbëI=íÜ~í=éÉêÑçêã=ãìÅÜ=ÄÉííÉê=íÜ~å=íÜÉ= ~îÉê~ÖÉI=íÜÉ=~ÖÖêÉÖ~íÉ=áãéêÉëëáçå=ëáåÅÉ=Éìêç=Éåíêó=áë=çÑ=~=Åçìåíêó=ïÜÉêÉ= ãçêÉ=~åÇ=ãçêÉ=éÉçéäÉ=éêçÇìÅÉ=íÜÉ=ë~ãÉ=óÉ~ê=~ÑíÉê=óÉ~êK==E`Ü~êí=ÄÉäçïKF== qÜ~í=ãÉ~åë=ÇÉÅäáåáåÖ=çê=ÉîÉå=åÉÖ~íáîÉ=Eä~ÄçìêF=éêçÇìÅíáîáíóK= • êÉÇìÅÉÇ= Productivity ÅçãéÉíáíáîÉåÉëë= (Annual GDP growth versus annual employment growth) 5 áåÅäìÇáåÖ=îáëJ¶Jîáë= Euro äçïJÅçëí=ÅçìåíêáÉë=áå= 4 GDP `Éåíê~ä=~åÇ=b~ëíÉêå= 3 bìêçéÉK= 2 • ~=Ñê~Åíáçìë=éçäáíáÅ~ä= Employment 1 ëóëíÉã=íÜ~í=ÇçÉë=åçí= 0 ÉåÅçìê~ÖÉ= Since euro-entry, Italy has remained a strong job creator (red -1 line) but GDP growth (blue line) has flagged. That means little ÅçåëÉåëìë=Ñçê= addition to output despite many new hands, or statistically -2 ìåéçéìä~ê=~ìëíÉêáíó= speaking: low productivity growth. Prior to euro-entry, GDP éçäáÅáÉë=íç=íÜÉ=äçåÖ= -3 grew faster than the labour stock. 1988 1992 1996 2000 2004 íÉêã=ÄÉåÉÑáí=çÑ=íÜÉ= Åçìåíêó== • ìåÑ~îçìê~ÄäÉ= ã~íìêáíó=ëíêìÅíìêÉ=çÑ=ÖçîÉêåãÉåí=ÇÉÄí=E~ååì~ä=êÉÑáå~åÅáåÖ=ê~íáç=çÑ=PMBF= • ÇÉÉé=Çáîáëáçå=ÄÉíïÉÉå=~=éêçëéÉêçìë=åçêíÜ=~åÇ=~å=áãéçîÉêáëÜÉÇ=ëçìíÜK==qÜ~í= áë=ÉîÉå=êÉÑäÉÅíÉÇ=áå=íÜÉ=éêÉëÉåí=Åç~äáíáçå=ÖçîÉêåãÉåí=ïÜáÅÜ=áåÅäìÇÉë=íïç= éêçJåçêíÜ=ëÉé~ê~íáëí=é~êíáÉëK==pçãÉ=Ü~îÉ=ëéÉÅìä~íÉÇ=íÜ~í=Çáîáëáçå=ÅçìäÇ=ÄêÉ~â= ìé=íÜÉ=Åçìåíêó=ÄÉÑçêÉ=áí=ÄêçâÉ=ïáíÜ=íÜÉ=Éìêç=EëÉÉ=ÄÉäçïFK== = iÉ~îáåÖ=íÜÉ=Éìêç\=cáå~ääóI=~=ÖêçïáåÖ=ÅçåÅÉêå=~ãçåÖ=áåîÉëíçêë=áë=íÜ~í=áå=~=ïçêëí=Å~ëÉ= ëÅÉå~êáç=fí~äó=ã~ó=ÑáåÇ=äÉ~îáåÖ=íÜÉ=Éìêç=~ë=íÜÉ=äÉ~ëí=é~áåÑìä=ëçäìíáçå=íç=áíë= éêÉÇáÅ~ãÉåí=~ë=íÜ~í=ïçìäÇ=~ääçï=íÜÉ=ÖçîÉêåãÉåí=íç=áåÑä~íÉ=~åÇ=ÇÉî~äìÉ=áíë=ï~ó=çìí= çÑ=íÜÉ=ÇÉÄí=éêçÄäÉãëK==qÜáë=áë=~=ÅçãéäáÅ~íÉÇ=èìÉëíáçå=áåÇÉÉÇ=~åÇ=íÜÉ=~åëïÉê=ÇÉéÉåÇë= åçí=çåäó=çå=fí~äó=Äìí=~äëç=çå=íÜÉ=êÉ~Åíáçå=çÑ=íÜÉ=çíÜÉê=ÉìêçJÅçìåíêáÉëK==pìÅÜ=~=ÇÉÅáëáçå= Äó=çåÉ=çÑ=áíë=ãÉãÄÉêë=ïçìäÇ=Ü~îÉ=åÉÖ~íáîÉ=êÉéÉêÅìëëáçåë=çå=~ää=çÑ=íÜÉãK==qÜÉ=çíÜÉêë= ÅçìäÇ=íÜÉêÉÑçêÉ=ÇÉÅáÇÉ=íÜ~í=íÜÉáê=äÉ~ëí=é~áåÑìä=çéíáçå=ïçìäÇ=ÄÉ=íç=ëìééçêí=íÜÉ= íêçìÄäÉÇ=Åçìåíêó=~åÇ=Ä~ëáÅ~ääó=Ä~áä=áí=çìíK==eçïÉîÉêI=íÜ~í=ãáÖÜí=åçí=ÄÉ=ÅÜÉ~é=ÉáíÜÉê= ~åÇ=ïçìäÇ=êáëâ=ëÉííáåÖ=~=Ä~Ç=éêÉÅÉÇÉåÅÉK==eÉåÅÉ=íÜÉ=ÇÉÅáëáçå=ã~ó=åçí=Ñ~ää=çìí=áå= Ñ~îçìê=çÑ=~=Ä~áä=çìíK=JJ=tÜ~íÉîÉê=ÖçîÉêåãÉåíë=ã~ó=íÜáåâ=çê=åçí=íÜáåâI=~í=íÜÉ=ÉåÇ=çÑ= íÜÉ=Ç~ó=ïÜ~í=ã~ííÉêë=áë=Üçï=ã~êâÉíë=ÄÉäáÉîÉ=ÖçîÉêåãÉåíë=ïáää=~Åí=ÄÉÅ~ìëÉ=íÜ~í= ÇÉíÉêãáåÉë=íÜÉáê=~ééÉíáíÉ=Ñêç=íÜÉ=ëçîÉêÉáÖå=ÇÉÄí=áå=èìÉëíáçåK== = tÉ=ëÉÉ=åç=éçáåí=áå=éìêëìáåÖ=íÜÉëÉ=ÅçåëáÇÉê~íáçåë=~åó=ÑìêíÜÉê=ïáíÜáå=íÜÉ=ëÅçéÉ=çÑ=íÜáë= åçíÉK==jçëí=~å~äóëíë=ëíáää=~ëëÉêí=íÜ~í=íÜÉáê=ã~áå=ëÅÉå~êáç=áë=Ñçê=íÜÉ=ÉìêçJòçåÉ=íç=êÉã~áå= áåí~Åí=Ñçê=íÜÉ=ÑçêÉëÉÉ~ÄäÉ=ÑìíìêÉK==qÜ~í=áë=åçí=ìåêÉ~ëçå~ÄäÉ=ÖáîÉå=~ää=íÜÉ=éçäáíáÅ~ä= éêÉëíáÖÉ=îÉëíÉÇ=áå=íÜÉ=ÉåíÉêéêáëÉ=ÇÉëéáíÉ=íÜÉ=ÜáÖÜ=éêáÅÉ=íÜ~í=ã~ó=ÅçëíK=^í=íÜÉ=ë~ãÉ= íáãÉ=áí=áë=~äëç=Ü~êÇ=íç=áÖåçêÉ=íÜÉ=Ñ~Åí=íÜ~í=Åçåíáåì~íáçå=çÑ=éêÉëÉåí=ã~êâÉí=íêÉåÇë=

Expenditure Approach, Production Approach, Gross Domestic Product, Constant Prices, Cal Adj, EUR, 2000 prices [ar 4 quar Employment by Industry, Total [ar 4 quarters] Source: Reuters EcoWin

4

SEB Merchant Banking Country Risk Analysis February 2, 2009

Å~êêáÉë=íÜÉ=êáëâI=~äÄÉáí=ëíáää=ëã~ääI=çÑ=ÄÉÅçãáåÖ=~=ëÉäÑJÑìäÑáääáåÖ=éêçéÜÉÅóK==få=íÜÉ=Å~ëÉ=çÑ= fí~äó=áí=Ü~ë=ÄÉÉå=ëéÉÅìä~íÉÇ=íÜ~í=íÜÉ=êáëâ=éêÉãáìã=çå=åÉï=ëçîÉêÉáÖå=áëëìÉë=ÅçìäÇ= ÄÉÅçãÉ=ÜáÖÜÉê=íÜ~å=éêáçê=íç=ÉìêçJÉåíêóI=áå=ïÜáÅÜ=Å~ëÉ=íÜÉ=Éìêç=Ñçê=fí~äó=ÇáÇ=åçí=ÄêáåÖ= íÜÉ=ÄÉåÉÑáíë=ã~åó=Ü~Ç=ÉñéÉÅíÉÇK==qç=ã~âÉ=ëìêÉI=íÜÉëÉ=êÉÑäÉÅíáçåë=~êÉ=åçí=ãÉ~åí=~ë=~= Åêìë~ÇÉ=~Ö~áåëí=fí~äóK==pÉîÉê~ä=çíÜÉê=ÅçìåíêáÉë=ã~ó=Ü~îÉ=àçáåÉÇ=íÜÉ=Éìêç=çê=ÄÉ=ÜçéÉÑìä= çÑ=ëççå=àçáåáåÖ=áí=é~êíäó=áå=íÜÉ=ÜçéÉ=çÑ=ëçäîáåÖ=ÅçåÑáÇÉåÅÉ=éêçÄäÉãë=îáëJ¶Jîáë= ã~êâÉíëK==eçïÉîÉêI=~=Éìêç=îáÉïÉÇ=~ë=~=ÅìêêÉåÅó=çÑ=ÑêÉÉJêáÇÉêë=ïçìäÇ=äáâÉäó=ëáåâ=íÜÉ= ÉåíÉêéêáëÉ=ëççåÉê=ê~íÜÉê=íÜ~å=ä~íÉêK=== JGJ= = fí~äóÛë=ê~íáåÖ=Ü~ë=ÄÉÉå=ìåÇÉê=Ççïåï~êÇ=éêÉëëìêÉ=Ñçê=ëÉîÉê~ä=óÉ~êë=~åÇ=áå=OMMS=íïç= áåíÉêå~íáçå~ä=ê~íáåÖ=~ÖÉåÅáÉë=ÇçïåÖê~ÇÉÇ=íÜÉ=ëçîÉêÉáÖå=ê~íáåÖ=çåÉ=åçíÅÜK==få=íÜÉ=Å~ëÉ=çÑ=pCm= íÜ~í=ÄêçìÖÜí=íÜÉ=ê~íáåÖ=Ççïå=ÄÉäçï=^^I=íÜ~í=áë=çìí=çÑ=~=ê~íáåÖ=~êÉ~=åçêã~ääó=êÉÖ~êÇÉÇ=~ë= “ë~ÑÉÒ=Äó=ãçëí=áåîÉëíçêëK=^ë=ëìÅÜI=fí~äóÛë=ê~íáåÖ=ÇÉé~êíÉÇ=ïáíÜ=ãçëí=çíÜÉê=lb`a=ÅçìåíêáÉëK== pCm=àìëíáÑáÉÇ=áíë=ÇÉÅáëáçå=ÄÉÅ~ìëÉ=çÑ=íÜÉ==ã~åó=ëíêìÅíìê~ä=ÇÉÑáÅáÉåÅáÉë=áå=íÜÉ=ÉÅçåçãó=~åÇ= ~äëç=fí~äóÛë=~éé~êÉåí=áå~Äáäáíó=íç=êÉëíçêÉ=ÅçãéÉíáíáîÉåÉëë=~ë=íÜ~í=Ü~Ç=íÜÉ=éçíÉåíá~ä=íç=ÉñéçëÉ= íÜÉ=ëçîÉêÉáÖåÛë=îìäåÉê~Äáäáíó=íç=~ÇîÉêëÉ=ëÜçÅâëI=~ÅÅçêÇáåÖ=íç=íÜÉ=~ÖÉåÅóK=== = tÜáäÉ=íÜÉ=ÉñíÉêå~ä=ê~íáåÖë=~åÇ=íÜÉ=ã~êâÉí=éêáÅáåÖ=çÑ=ëçîÉêÉáÖå=ÇÉÄí=éêçîáÇÉ=~=ÅäìÉ=íç=íÜÉ= ÇÉíÉêãáå~íáçå=çÑ=íÜÉ=ÅêÉÇáíïçêíÜáåÉëë=çÑ=íÜÉ=ÖçîÉêåãÉåíI=Åçìåíêó=êáëâ=ÇçÉë=åçí=åÉÅÉëë~êáäó= ÑçääçïK==cçê=Éñ~ãéäÉI=ëÜçìäÇ=íÜÉ=ëçîÉêÉáÖå=ÇÉÑ~ìäí=Äìí=íÜÉ=Åçìåíêó=ëíáää=êÉã~áå=áå=íÜÉ=ÉìêçJ òçåÉI=áåîÉëíçêë=ãáÖÜí=ÅÜççëÉ=åçí=éìåáëÜ=éêáî~íÉ=áëëìÉêëK==eçïÉîÉêI=áå=íÜÉ=Å~ëÉ=çÑ=fí~äó=ëçãÉ= çÄëÉêîÉêë=Ü~îÉ=ÇÉÉãÉÇ=ëìÅÜ=~=ëÅÉå~êáç=ìåäáâÉäó=~ë=íÜÉ=ÖçîÉêåãÉåí=Ñçê=çåÉ=íÜáåÖ=ïçìäÇ= Ñçêë~âÉ=íÜÉ=ÄÉåÉÑáíë=çÑ=ÇÉî~äì~íáçå=áå=áíë=ÇÉÑ~ìäíK==aÉî~äì~íáçå=ïçìäÇ=~ÑÑÉÅí=~ää=áëëìÉêë=~åÇ= ã~åó=çÑ=íÜÉã=ãáÖÜí=Ñçääçï=íÜÉ=ÖçîÉêåãÉåí=~åÇ=í~âÉ=íÜÉ=çééçêíìåáíó=íç=êÉåçãáå~íÉ=íÜÉáê=ÇÉÄí= áåíç=ÇÉî~äìÉÇ=“fí~äá~å=ÉìêçÒEçê=“åÉï=äáê~ÒFI==ÉÑÑÉÅíáîÉäó=ÇÉÑ~ìäíáåÖ=áå=íÜÉ=éêçÅÉëëK==pÉÅçåÇI=~= ëçîÉêÉáÖå=ÇÉÑ~ìäí=ïáíÜçìí=ÇÉî~äì~íáçå=áë=ìåäáâÉäó=~äëç=ÄÉÅ~ìëÉ=áí=ïçìäÇ=Å~êêó=íÜÉ=Ç~åÖÉê=çÑ=~= ëçîÉêÉáÖå=Åçää~éëÉ=~ë=íÜÉ=í~ñ=Ä~ëÉ=èìáÅâäó=ÉêçÇÉÇK==lîÉê~ääI=ëÜçìäÇ=ëìÅÜ=~=ëÅÉå~êáç=ã~íÉêá~äáòÉ= ïÉ=ÄÉäáÉîÉ=íÜÉêÉ=ïçìäÇ=ÄÉ=~=ÅçååÉÅíáçå=ÄÉíïÉÉå=Åçìåíêó=~åÇ=ëçîÉêÉáÖå=êáëâ=áå=íÜÉ=Å~ëÉI=íÜ~í= ã~ó=~í=~åóíáãÉ=ëÜçï=ìé=áå=íÜÉ=éêáÅáåÖ=çÑ=éêáî~íÉ=ÇÉÄí=~ë=ïÉääK==^Ö~áåëí=íÜÉ=Ä~ÅâÖêçìåÇ=çÑ= ëìÅÜ=ÅçåëáÇÉê~íáçåë=~åÇ=~ë=íÜÉ=ÖäçÄ~ä=çìíäççâ=Ü~ë=ïçêëÉåÉÇ=ëáÖåáÑáÅ~åíäó=çîÉê=íÜÉ=ä~ëí=óÉ~ê= ïáíÜ=íÜÉ=áãé~Åí=íÜáë=Å~å=Ü~îÉ=çå=fí~äóI=ïÉ=ëÉÉ=~êÖìãÉåíë=Ñçê=pCmÛë=ÇçïåÖê~ÇÉ=áå=OMMS=ÄÉáåÖ= áåÅêÉ~ëáåÖäó=àìëíáÑáÉÇK=== =

Key ratios

2009

mçéìä~íáçå=EãáääáçåëF

SM

GDP/capita ($)

34

GDP (change)

-3,7%

Resilience 16 14 12 10 8

Macro balance

6 4

Liquidity

2 0

Inflation

0,6%

Curr.acc. balance/GDP

-2,4%

Reserves/imports (months) Budget balance/GDP(*)

-5,0%

Government debt/GDP(*)

110%

bñíÉêå~ä=ê~íáåÖëW= cáíÅÜW=^^J pCmW=^H

Absence of event risk

1,1

mÉÉêëW päçîÉåá~ eçåÖ=hçåÖ pé~áå=

Italy

Information

Hong Kong

Graph: Like Hong Kong, Italy is strong on information and resilience, but clearly weaker on macro balance. The absence of event risk, by contrast, flatters the risk profile of Italy. Italy's reserves are small, but its liquidity is still strong being a part of EMU.

=

= 5

SEB Merchant Banking Country Risk Analysis February 2, 2009

Key data: 2004 GDP (bill. US$) 1729 GDP/capita (US$) 30 GDP (change) 1,4% Investments/GDP 21% Budget balance/GDP* -3,5% Govt debt/GDP** 104% CPI inflation (%) 2,2% Money demand (%) 12,9% Stock prices 21089 Interest rates 2,1% Exch. Rate ($) Trade/GDP (%) 32% Oil price (Brent) $38 billions US $ 283 Export of goods Imports of goods 274 Other: -25 -17 Current account (% of GDP) -1,0% FDI -2 Loan repayments Net other capital flows Balance of payments OR Reserves SMQ Total debt o/w short term debt Sources: Oxford Economics and SEB estimates.

Rating history Fitch (eoy) S&P (eoy) Type of government: Next elections Other: Latest PC deal Latest IMF arrangements

2005 1778 30 0,7% 21% -4,2% 106% 2,0% 17,0% 25083 2,2%

2006 1861 32 1,9% 21% -3,4% 107% 2,1% 13,6% 29029 3,1%

2007 2104 35 1,4% 21% -1,9% 104% 1,8% 7,9% 31847 4,3%

2008 2313 39 -0,9% 21% -2,8% 104% 3,3% -34,0% 22084 4,6%

2009 2044 34 -3,7% 21% -5,0% 110% 0,6% -37,0%

2010 2209 37 0,0% 21% -5,3% 114% 1,0% 14,3%

2011 2277 38 1,4% 21% -4,8% 115% 1,8% 13,3%

1,5%

1,2%

2,0%

34% $54

36% $65

35% $73

33% $98

35% $45

34% $59

36% $67

299

334

365

378

358

375

408

299

344

364

379

358

382

416

-30

-38

-52

-71

-48

-52

-51

-30

-48

-51

-72

-48

-60

-59

-1,7%

-2,6%

-2,4%

-3,1%

-2,4%

-2,7%

-2,6%

-21

-3

-52

-66

-51

-55

-56

OP SNQ

OQ UMM

OU N=MPU

PO

PS

PU

QQ

AA AA AA AAParliamentary Democracy 2013

AAA+

AAA+

None None

S to c k e x c h a n g e

R e a l E ff e c t iv e E x c h a n g e R a te In d e x

Percent change (yoy)

I ta ly , M ila n S E , M ta , M I B 3 0 I n d e x , C lo s e , E U R

55000 50000 45000 40000 Index

AAA+

35000 30000 25000 20000

I ta ly , E u r o p e a n C o m m is s io n , , C P I , A v e ra g e , E U R

8 6 4 2 0 -2 -4 2001

15000

2 001

2004

2004

2007

2 007 a r 4 q u a rte rs S o u rc e : R e u te r s E c o W in

S o u rc e : R e u te rs E c o W i n

In d u s tria l p r o d u c tio n a n d n e w o r d e r s

C onsum er P rices 5 Percent pa.

Index

125 115 105 95 85 2000

4 3 2 1

2002

2004

2006

2008

0

2000

2002

2004

2006

2008

P ro d u c tio n , B y In d u s try , O ve ra ll, TO T A L , To ta l in d u s try , L in k e d a n d R e b a s e d N e w O rd e rs , M a n u fa c tu rin g , O ve ra ll, D , T o ta l a r 1 2 m o nths S o u rc e : R e u te rs E c o W i n

6

S o u rce: R eu te rs E co W in

SEB Merchant Banking Country Risk Analysis February 2, 2009

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