Where Italy differs most from the other advanced economies is in the extent of its underground economy and tax evasion, which translates into an excessive tax burden for those who play by the rules.
The ensuing flight to safety has led to soaring yields and lending rates in stressed countries. But the resulting excess demand for safe assets has also squeezed yields in core countries. Therefore, financial fragmentation has negatively affected both borrowers in stressed peripheral countries and savers in the core euro area.