Italy may become the new 'I' in PIGS

ROME – Perhaps the “I” in PIGS, should be Italy instead of Ireland.

The unfortunate acronym is used to describe the four European countries that are most exposed to the current economic crisis – Portugal, Ireland, Greece and Spain.

For a while, with its deepening debt problems, Ireland seemed to have earned the vowel slot in the unflattering group, while Italy, despite owing 120 percent of its gross domestic product, seemed to sail through the euro-zone debt crisis.

No longer.

Since the start of the week, Italy’s stock market has been recording record losses and there are big worries ahead about the results of stress tests on the health of European banks that are expected to be released Friday.

But what’s needed more urgently, it seems, is a stress test for investors.

Shares in Italy’s biggest banks fell sharply last week after a rally of short-selling by traders betting on their downfall, a sign of loss of confidence on the market.

Their actions have been condemned by economists and commentators alike. But if you dig deeper, you’ll find that ruthless investors weren’t the only ones trying to make money out of the current financial crisis.

In fact, it was Italy’s most notorious businessman, Silvio Berlusconi, who tried the biggest coup of them all.

Last week Berlusconi tried to introduce a measure into Italy’s $55 billion emergency austerity budget that would have allowed his family company, Fininvest, to delay payment related to corruption charges in the acquisition of the Mondadori publishing company back in the 1990s. The fee was no small sum – a whopping $798 million. Berlusconi hastily withdrew the proposed measure after it came under fire from political opponents and the general public.

The move backfired and a Milan court ordered Fininvest to pay the damages immediately on Saturday. Berlusconi’s lawyer said the company will pay the damages while it appeals against the penalty.

But the million-dollar question is: How can a prime minister expect austerity from his people when he is trying to save himself from paying hundreds of millions in legal charges?

Berlusconi’s recent (and ancient) preoccupations with his entrepreneurial past and current legal woes (he is a defendant in four ongoing trials, one of which for allegedly having had sex with a minor) is seen by some as having played a major role in the current crisis – along with Italy’s lack of competitiveness, zero growth and low productivity.

Italians, who are known for their conservative take on the economy (the majority of Italians own their houses instead of renting, their credit card spending is low compared to other neighboring countries and their banking system is traditional rather than based on volatile investments) are starting to feel the strain. According to a recent survey, only 1 in 5 Italians will go on vacation this year. Of those who go, about 35,000 had to take a loan to afford it.

With temperatures expected to reach over 100 degrees Celsius Fahrenheit on Tuesday in some parts of Italy, Italians hope that the country is not heading for a meltdown in more ways than one.