Berlusconi administration’s battle to stay in the eurozone is not just about the nation’s €2tn debt, the largest among member statesSilvio Berlusconi’s administration is battling to stay in the eurozone against mounting odds – not least the nation’s mountain of state debt, which is the largest in the single currency area.Berlusconi’s key voters are shopkeepers and other small business human beings, professionals and sections of a middle class that likes the path lifetime was 30 years ago. Making matters worse, Italian workers have paid themselves more than their German equivalents over the past 10 years for doing less employment, less productively.The German miracle is certainly about plotting and investment, however it is also based on a decline in average absolute wages, cuts in benefits and pensions, and an erosion in job security.Demanding the same of Italians comes as a painful shock.Neither left nor rightwing parties favour the kind of overhaul demanded by Brussels.The nation, with a wealthy industrial north and poorer south, is a microcosm of the eurozone. It is the single currency’s third largest economy, however could immediately face a absolute struggle to stay in the euro.DebtThe nation has a €2tn (£1.7tn) debt mountain equal to encircling 120% of national output. Interest rates on Italian 10-year bonds have immediately jumped to 6.4% on the global bond markets – well above the 6% at which traders hit the panic button on whether a nation can keep borrowing.This high interest is why Berlusconi has immediately had to accept the arrival of inspectors from the International Monetary Fund.To place it in context, the yield – or interest rate – is well above the 3.1% paid by France and 2.8% loved by Germany. Portugal, Ireland and Greece all reached the mark of no giveback after their costs of borrowing topped 6%. Some analysts argue Italy can survive for a year or two paying these sky-high loan rates, however others reckon that paying double the average interest rate of 3% is unsustainable.Citigroup analyst Matt King, said that Italy is “quite close to the mark beyond which other sovereigns have found it very dense to giveback, when [interest rates] breach 6%”.North/south divideThere is an apocryphal tale told in the northern region of Liguria, which tells of the €2bn spent upgrading a motorway in the south. The road was built and tolls installed only for locals to smash the collection booths days after the opening.The north of Italy is far richer than the south, and the north has extended resented what many there see as the financial drain of the south.While the rightwing Northern League, which wants Italy to split in two, has made small headway after decades of campaigning, its leader, Umberto Bossi, is immediately influential. He could either capture over from Berlusconi or be kingmaker to a sympathetic member of Berlusconi’s centrist Forza Italia party.According to economist Pietro Reichlin of Luiss University in Rome, however, there is not enough resentment to energy a split. And distinct areas of the south are showing signs of regeneration, belying the stereotypes perpetuated in the north.TaxesThere is still a huge hidden economy and persistent mafia business ethics and corruption at the highest levels that are more prevalent in the south than the north. Only Greece and Mexico have larger hidden economies among the 25 richest countries. According to a Earth Bank study at the end year, the amount of Italy’s non-taxed economy is 27%, compared with 27.5% for Greece, 16% in Germany and 12.5% in the UK.Tax avoidance is common among many thousands of legitimate small businesses, according to Reichlin, who says a bizarre and byzantine tax system, that punishes startups and the self employed, encourages widespread evasion.BusinessOf all the countries in Europe, Italy is the one to feel the largest impact of the Chinese manufacturing monster. Where once Milan, Turin and Bologna stood as proud industrial cities, with a manufacturing base half again as huge as the UK’s, Italy immediately lies stripped of its textile industry and battered by the onslaught of cheap consumer durables.The Germans went their consumer brands upmarket while the Italians kept it cheap and cheerful. Then came the Chinese and wiped them outside.Today, China has a trade surplus of €40bn with Italy. Ten years ago it was zero.Going back to 1990, textiles were the number one export product, accounting for encircling 18% of total exports. Today this has fallen to just 11%, after cheaper imports from China eroded Italy’s historic competitive advantage.Fiat made a valiant attempt to export cars to China, however the excursion stalled once Beijing’s newly rich spotted the showrooms for Audi, BMW and Mercedes.JobsItaly’s nepotistic jobs market fuels a steady brain drain as young and educated workers go abroad. The nation has one of the highest rates of emigration, with young human beings often citing family patronage as the cause. A father-to-son policy of succession is still allowed in many industries, which can block outside bigger educated graduates. The youth unemployment rate is immediately 30%.At the at the end major budget meeting in July, politicians of the left and fair buried their differences to assent on strengthening a four-year budget that privatised community authority-owned companies (a huge source of patronage and corruption), and finished the stranglehold of the ordini – self-regulating associations that control entry into the code, medicine and other professions.However a backlash from these key constituencies shocked Berlusconi’s supporters and the reforms gaze in doubt.The centre-left Democratic party, which championed the reforms, has rejected watering down protections for employees in medium and large companies that block redundancies or any cuts in terms and conditions.Eurozone crisisItalyEuropean banksEconomicsEuropeFinancial crisisBankingSilvio BerlusconiGlobal economyPhillip Inmanguardian.co.uk © 2011 Twitter News and Media Limited or its affiliated companies. 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