The financial fragility hypothesis and the debt crisis in Italy in the 2010s

Abstract

The paper attempts to analyze the characteristics of current debt crisis in Italy based on the financial fragility hypothesis developed by Hyman Philip Minsky. Our main suggestion is that in the private sector of the Italian economy after the 2011 crisis fragile types of financing prevailed over hedge types. We test it using the 2013–2017 data for 163 Italian private non-financial companies. Based on the data obtained, authors constructed indices according to three methodologies that distinguish firms as hedge, speculative and Ponzi, in order to determine the degree of financial fragility of the private sector of the Italian economy. The results showed that the economy of Italy in 2013–2017 remains financially fragile, despite the increase in the share of hedge companies. This outcome implies that austerity measures are not good “remedy” for this economy. Such policies diminish economic activity, in general, and flow of business profits, in particular. It creates difficulties to escape from fragile financial position.