If Spain is Ireland writ large, then Italy is Portugal writ large. That these states can't grow out of the debt they have accumulated is true. That there is a sovereign bond crisis involving these states is also true. But are the PIIGS really in trouble because of a crisis of government spending? In the Italian case the reliance on deficits that became debts and on devaluations that were substituted by cheap capital flows and artificially low yields once the euro came in, suggests a slow-moving fiscal train wreck, where eventually markets woke up to the fact that thirty years from now there will be no one in Italy working to pay off the interest on those thirty-year bonds since they will be too busy paying for pensions. Moreover, markets no longer view what was sustainable in 1999—running a debt-to-GDP ratio of over 100 percent—as sustainable now given the contagion risk from the other PIIGS. The perception of the risk has changed, rather than the underlying risks themselves, which have always been there.

Mark Blyth, Austerity, loc. 198