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Italy February Country Risk Analysis

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					Italy
SEB MERCHANT BANKING – COUNTRY RISK ANALYSIS                                                                     February 2, 2009

Analyst: Rolf Danielsen. Tel : +46 8 763 83 92. E‐mail : rolf.danielsen@seb.se
 
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
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                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=
                ëÉÉã=ìåÑ~áêK=b~êäáÉê=                ITALY: Government debt/GDP
                íÜáë=ÇÉÅ~ÇÉI=fí~äó=
                ï~íÅÜÉÇ=íÜÉ=ÅêÉÇáí=         140
                Ñáå~åÅÉÇ=ÅçåëìãÉê=          120
                ~åÇ=ÜçìëáåÖ=Äççã=           100
                íÜ~í=íççâ=éä~ÅÉ=áå=          80
                ã~åó=çíÜÉê=                  60
                                             40
                bìêçéÉ~å=ÅçìåíêáÉë=
                ãçëíäó=Ñêçã=íÜÉ=                1980 1985 1990 1995 2000 2005 2010
                ëáÇÉäáåÉI=íÜÉêÉÄó=          The government debt ratio rose rapidly in the 1980s but
                                            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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                                                              2
SEB Merchant Banking Country Risk Analysis February 2, 2009


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               =
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               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
                      2,0                                 8 - year
                                                                                                                                           Italy
                      1,5

                      1,0

                      0,5

                      0,0                                                                                  France
                                                                                                                                                                UK
                                                                                                                                                                               Spain

                    -0,5
                       jan mar                            maj                          jul                 sep                        nov                            jan
                                     Italy, 8 Year, EUR   Spain, 8 Year, EUR
                                                                                        2008
                                                                                   France, 8 Year, EUR   Greece, 7 Year, EUR      United Kingdom, 8 Year, GBP        Ireland, 5 Year, EUR



                                                                                                                               Source: Reuters EcoWin =

                                                                               3
SEB Merchant Banking Country Risk Analysis February 2, 2009


               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)
                        áåÅäìÇáåÖ=îáëJ¶Jîáë=         5                                                     Euro
                        äçïJÅçëí=ÅçìåíêáÉë=áå=       4
                                                                                       GDP
                        `Éåíê~ä=~åÇ=b~ëíÉêå=         3
                        bìêçéÉK=                     2
                                                         Percent




                    • ~=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
                        ÅçåëÉåëìë=Ñçê=              -1 line) but GDP growth (blue line) has flagged. That means little
                                                         addition to output despite many new hands, or statistically
                        ìåéçéìä~ê=~ìëíÉêáíó=        -2
                                                         speaking: low productivity growth. Prior to euro-entry, GDP
                        éçäáÅáÉë=íç=íÜÉ=äçåÖ=       -3 grew faster than the labour stock.
                        íÉêã=ÄÉåÉÑáí=çÑ=íÜÉ=                 1988        1992         1996       2000       2004

                        Åçìåíêó==                                      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
                    • 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=

                                                                   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                                           Resilience
                                                                                                 16

 mçéìä~íáçå=EãáääáçåëF                            SM                                             14
                                                                                                 12
                                                                                                 10
 GDP/capita ($)                                   34                                              8
                                                                                                  6
                                                                 Macro balance                    4                Liquidity
 GDP (change)                                -3,7%                                                2
                                                                                                  0


 Inflation                                    0,6%
 Curr.acc. balance/GDP                       -2,4%
                                                                           Absence of
 Reserves/imports (months)                       1,1                                                         Information
                                                                            event risk
 Budget balance/GDP(*)                       -5,0%
                                                                               Italy                       Hong Kong
 Government debt/GDP(*)                      110%

  bñíÉêå~ä=ê~íáåÖëW=              mÉÉêëW                      Graph: Like Hong Kong, Italy is strong on information
  cáíÅÜW=^^J                      päçîÉåá~                    and resilience, but clearly weaker on macro balance. The
  pCmW=^H                         eçåÖ=hçåÖ                   absence of event risk, by contrast, flatters the risk profile
                                  pé~áå=                      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                                                             2005                           2006                                            2007                 2008                      2009                         2010                         2011
 GDP (bill. US$)                    1729                                                             1778                           1861                                            2104                 2313                      2044                         2209                         2277
 GDP/capita (US$)                      30                                                              30                             32                                               35                  39                        34                           37                            38
 GDP (change)                       1,4%                                                            0,7%                           1,9%                                             1,4%               -0,9%                     -3,7%                         0,0%                          1,4%
 Investments/GDP                     21%                                                             21%                            21%                                              21%                 21%                       21%                          21%                           21%
 Budget balance/GDP*               -3,5%                                                           -4,2%                          -3,4%                                            -1,9%               -2,8%                     -5,0%                        -5,3%                         -4,8%
 Govt debt/GDP**                   104%                                                             106%                           107%                                            104%                 104%                      110%                         114%                         115%
 CPI inflation (%)                  2,2%                                                            2,0%                           2,1%                                             1,8%                3,3%                      0,6%                         1,0%                          1,8%
 Money demand (%)                 12,9%                                                            17,0%                          13,6%                                             7,9%              -34,0%                    -37,0%                        14,3%                         13,3%
 Stock prices                      21089                                                           25083                          29029                                            31847               22084
 Interest rates                     2,1%                                                            2,2%                           3,1%                                             4,3%                4,6%                         1,5%                       1,2%                           2,0%
 Exch. Rate ($)
 Trade/GDP (%)                       32%                                                            34%                                  36%                                        35%                      33%                      35%                         34%                            36%
 Oil price (Brent)                    $38                                                            $54                                  $65                                        $73                      $98                      $45                         $59                            $67
 billions US $
 Export of goods                      283                                                             299                                   334                                      365                      378                        358                         375                            408
 Imports of goods                     274                                                             299                                   344                                      364                      379                        358                         382                            416
 Other:                                -25                                                             -30                                    -38                                     -52                      -71                        -48                         -52                            -51
 Current account                       -17                                                             -30                                    -48                                     -51                      -72                        -48                         -60                            -59
    (% of GDP)                      -1,0%                                                           -1,7%                             -2,6%                                         -2,4%                    -3,1%                   -2,4%                      -2,7%                          -2,6%
 FDI                                    -2                                                             -21                                         -3                                 -52                      -66                        -51                         -55                            -56
 Loan repayments
 Net other capital flows
 Balance of payments
 Reserves                               OR                                                             OP                                    OQ                                        OU                      PO                          PS                          PU                              QQ
 Total debt                           SMQ                                                             SNQ                                   UMM                                     N=MPU
   o/w short term debt
 Sources: Oxford Economics and SEB estimates.



 Rating history
 Fitch (eoy)                                     AA            AA                                                              AA-                                             AA-                   AA-
 S&P (eoy)                                       AA           AA-                                                              A+                                              A+                    A+
 Type of government:                      Parliamentary Democracy
 Next elections                           2013
 Other:
 Latest PC deal                           None
 Latest IMF arrangements                  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
                           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
                                                                                                                                                                                            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
                                                                                                                                                        Percent change (yoy)




         55000

         50000                                                                                                                                                                  8
         45000                                                                                                                                                                  6
         40000                                                                                                                                                                  4
 Index




         35000                                                                                                                                                                  2
         30000                                                                                                                                                                  0
         25000                                                                                                                                                                 -2
         20000                                                                                                                                                                 -4
         15000                                                                                                                                                                         2001                                      2004                                        2007
                  2 001                                  2004                                      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
           125
                                                                                                                                                                               4
                                                                                                                                                         Percent pa.




           115
   Index




                                                                                                                                                                               3
           105
            95                                                                                                                                                                 2

            85                                                                                                                                                                 1
            2000          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                                                                                                                               S o u rce: R eu te rs E co W in




                                                                                                                                            6
SEB Merchant Banking Country Risk Analysis February 2, 2009




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                                                              7

				
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Description: Italy February Country Risk Analysis