Italy, and Italians, have a cash problem. There's not enough of it going around. There is, however, probably more than enough of it stored in hard to reach places.
Italians had € 5,900bln worth of real assets at the end of 2009, according to the Bank of Italy, mainly € 4,800bln in dwellings. And there are only some € 640bln of loans (both mortgages and consumer credit) outstanding against this. Net, then, there is around € 4,000bln of wealth sitting around tied up in houses. Compare this to total government debt of € 1,900bln and it would seem that Italy's problem, as above, is that it does not have enough cash on hand, not that the country is incapable of paying its debts.
The Monti government has proposed re-imposing the ICI tax on all houses as a way of re-balancing the budget and taxing houses. For me, this is not the correct way to deal with the problem because it removes cash from people's pockets and therefore leads to lower spending.
A better way to use the wealth built up in houses is to confiscate it. Ha, really wanted to say that. It issues a decree tomorrow that it owns 5% of everyone's house. And that you will get it back in 30 years time. The government then issues 30 year bonds backed by the houses at what should be a much lower rate than it is currently paying. This would allow the government to secure a long term source of financing, which should help to reduce the short term liquidity pressures.
Now I am fairly sure this proposal will not work, but I do think the solution to Italy's problems has to come from finding a way to productively access the capital which has been accumulated over the years and to make this capital flow, particularly downhill to the younger generations.