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Biella, Italy. As insiders of the fashion world will confirm, the bolts of wool and cashmere produced at Luciano Barbera’s mill can be described as some of the finest in the world. The goods are sold to dozens of luxury fashion brands like Armani, Zegna and Ralph Lauren.

The mill’s financial performance, on the other hand, is far from stellar. Like much of the Italian economy, the Carlo Barbera factory is struggling.

Since the economic crisis began, this country has regularly turned up on the informal list of “Nations That Worry Europe.”

Its finances are not as precarious as those of Greece, Portugal or Ireland because the Italian economy is larger — the seventh largest in the world, in fact. But its troubles are more frightening.

As a recent report by European banking group UniCredit put it, Italy is “the swing factor” in the crisis, “the largest of the vulnerable countries, and most vulnerable of the large.”

Study the numbers and you will find symptoms of distress similar to those of Greece.

Public sector debt amounts to roughly 118 percent of the gross domestic product, nearly identical to Greece. Italy is also trying to ease fears in the euro zone with an austerity package intended to cut the deficit in half, to 2.7 percent of GDP, by 2012.

But dig a little deeper and the similarities end. The Italians, unlike the Greeks, are born savers and much of the Italian debt is owned by Italians.

That means that, unlike Greece, which will be sending a sizable percentage of its GDP to foreign creditors for a generation to come, Italy is basically in hock to its own citizens.

“Italy’s problem isn’t that we have a lot of debt. It’s that we don’t grow,” said economist Carlo Altomonte, from Bocconi University in Milan.

When describing the ills of his business, Barbera, 72, tends to focus on one issue: the “Made in Italy” label.

For the last decade, he said, a growing number of clothing designers have been buying cheaper fabric in countries like China or Bulgaria, but slap a “Made in Italy” label on garments even if those garments are merely sewn in Italy.

Until recently, there weren’t any rules about what “Made in Italy” actually meant, but that will change when a new law goes into effect in October. The law states that if at least two of the four stages of production occur in Italy, a garment is made in Italy.

But labeling is just one of many obstacles standing between Barbera and profitability.

To understand why his factory, and so much of Italy, is stagnant or worse, requires a bit of geopolitical history and a look at the highly idiosyncratic business culture in the country.

It is defined, to a large degree, by deep-seated mistrust — not just of the government, but of anyone who isn’t part of the immediate family — as well as a widespread aversion to risk and growth.

It has economists here worried not about a looming fiasco, so much as a gradual and grinding decline.

“There is no sense of what a market economy is in this country,” Altomonte said. “What you see here is an incredible fear of competition.”

For Barbera, as is true with every entrepreneur here, the prevalence and power of Italy’s guilds explains much of what is driving up costs.

He said he must overspend for accountants, lawyers, truckers and other members of guilds on a list that goes on and on. “Everything has a tariff, and you have to pay,” Barbera said.

The protectionist impulses of the guilds are mimicked throughout the Italian labor market.

The rules are different for small companies, but in effect, people with a full-time job in a company with more than 18 workers have what amounts to tenure, even if they don’t belong to a union.

This makes managers reluctant to hire, especially in a downturn.

A sclerotic job market is a major reason that the Italian economy has been all but dormant for the past decade, growing far more slowly than its European peers. And this is a country that never had a housing bust or a major bank crisis.

So how does Italy keep going? Given the numbers, you expect it to be flat on its back.

But when you visit, there are hardly any signs of despair, even in places like Biella, where hundreds of factories and warehouses have closed in the last decade.

Why is this so? One answer is the black economy, economists suggested. Roughly one-quarter of Italy’s GDP is off the books.

When you inquire about the cause and persistence of this long-standing fact of life, people here say that most Italians have little sense of national identity, an obstacle to a system of national taxation.

The country didn’t really begin to transcend its clannish roots and regional dialects until after World War II. Even today, displays of national pride are reserved for World Cup victories and little else.

Italians, Altomonte noted, are among the world’s heaviest consumers of bottled water. “Do you want to know why? Because the water in the tap comes from the government.”

 
The New York Times