Italy is doing it the old-fashioned (private business) way: not paying their bills on time.
The government’s refusal to pay its suppliers violates EU rules. But the EU has soft-pedaled the issue, for two very big reasons: payment of arrears would force Italy to sell a truckload of bonds when there might not be any demand; and it would push the deficit way beyond the 3% line in the sand. Thanks to cash accounting, only actual disbursements make it into the deficit figure. Italy has achieved its “austerity” goals by not paying its suppliers.
Italy owes private firms about €120B, while its GDP is about €1,200B. If America owed the same proportion it would be about $1,500B. Yes, that is the size of the U.S. deficit, but (that’s just a coincidence and) there’s a huge difference. America has actually sold the bonds to fill that hole, while Italy can’t sell that many bonds (and remain good with the EU) so instead they’re simply not paying the bills on time.
The EU is also trying the sort of accounting gimmicks that got WorldCom into trouble:
Hence, a eurocratic deus ex machina: José Manuel Barroso, president of the European Commission, told the European Parliament on Wednesday that the budget rules would be reinterpreted for 2014 so that some public spending on infrastructure projects could be excluded from the deficit figures – something Italy has long pushed for in its valiant efforts to keep its deficit under 3%. If all else fails, monkey with the rules.
Via Tyler Cowen, who points out that if you’re a Keynesian (as most Europeans are) then the centrist government of Italy is choosing a contractionary fiscal policy that harms its own country … just to stay cool with the EU. This during Italy’s longest recession in 70 years, all while the right-wing party that wants the payments made now to help the economy.
BTW: You should look up and learn “deus ex machina”. It’s a fairly common phrase that a college student should know.