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The political upheaval and social unrest fueling the current crisis in Italy should surprise no one.Italy's per capita GDP in 2018 is about 8 percent below its level in 2007, the year before the global financial crisis triggered the Great Recession. Greece and Italy were the two economies carrying the highest debt burdens at the outset of the crisis (109 percent and 102 percent of GDP, respectively), leaving them poorly positioned to cope with major adverse shocks.The summer will probably be worse, bringing Italy closer to a sovereign debt crisis.General government debt is not the whole story for Italy, even setting aside the private debt loads and the recent renewed upturn in nonperforming bank loans (a daunting legacy of the financial crisis).When evaluating Italy's sovereign risk, the central bank's debts (TARGET2 balances) must be added to those of the general government. This debt, unlike pre-1999, pre-euro Italian debt, cannot be inflated away.Unlike Greece (post-2010), where official creditors held the lion's share of the debt stock, domestic residents hold most of Italy's public debt.
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