The integration of Europe into one European Union accordingly resulted in the integration of Europe's individual economies. Meaning that the economic development and stability of one country depends to a greater extent on the success of the rest of the European partners. This reliance was heightened by the introduction of the European Monetary Union in 1999 with the Euro as the common currency. Despite the Euro member states having a central bank, it is each country's responsibility to finance its government debt through the emission of governmental bonds. The risk premiums that have to be paid by each country differ through-out the Euro zone. The concern that Italy, with the present state of its economy and development prospects, could introduce future implications of its high government debt to the European Union as a whole. An analysis of the Italian economy will explore this likelihood.
The concern here is to give an analysis of the Italian Economy and development with its future implications of high governmental debt.
Economic growth and welfare is measured in the Gross Domestic Product (GDP). The classical macroeconomic models with the GDP as a sum of the consumption, investment, government purchases and net exports of a country are classical Keynesian models. The standard estimation approach for a macroeconomic model is to explain endogenous variables through exogenous variables. It considers governmental debt as a decreasing factor, such as payment for interest on bonds, and not the absolute amount of the government debt. This problem will be addressed by applying the econometric model E2012 to Italy, which takes the national debt as stock variable into account.
The thesis is structured in a literature review and a macro econometric simulation part. The literature review revealed that Italians are facing credit constraints and high restrictions on mortgage lending which shape the society and its consumption behaviour. The econometric analyses showed that an increase in output per worker in Italy decreases at the same time the number of available job places. This could lead to a higher unemployment rate in the next years linked to an increasing population.