JEFFREY BROWN: Now to Italy. Like Greece, it's under pressure from international creditors to bring down its massive national debt. But its economy is so big that an Italian default could bring about the collapse of the entire euro system.
Margaret Warner wraps up two weeks of reporting on the European debt story with this report from northern Italy on a country confronting the threats to its economy and much more.
MARGARET WARNER: Long before models float down the runways in Milan, fashion designers flock here, the biannual Milan textile fair. But this year's display of fabric, bolts and buyers belies the fact that this cornerstone of Italian industry is struggling.
Third-generation thread-maker Roberto Belloli says Italian materials, design and craftsmanship are in a dogfight, competing globally against cheaper goods, and using the euro means Italy can't devalue to compete on price, as it did in the days of the lira.
And now there's another threat, the eurozone crisis. Belloli has to turn away longtime customers at home and abroad because they're short of cash for credit.
ROBERTO BELLOLI, CEO, Antonio Aspesi, SRL: We had a good company with some customers in Greece. And, in this moment, it's not possible to work with them, for example, or in Spain, or in Portugal, because, in this moment, they have no credit. So we had to reduce this company. So, we cannot work with them.
MARGARET WARNER: All of Italy is hurting, from the fashion and financial hub of Milan to the country's many small towns, business is bad.
GIULIO COTI ZELATI, cafe owner (through translator): Earnings have changed. What's in the drawer at the end of the day, it is very easy to work a lot and earn very little.
MARGARET WARNER: We came from Germany to the prosperous north Italian region of Lombardy to see why Italy's economy is losing ground. The stakes here are enormous. Europe's second most indebted country after Greece, Italy's too big to bail out. But, as the world's seventh largest economy, it's too big to fail.
TITO BOERI, Bocconi University: The increasing Italian public debt occurred mostly in the '80s, beginning of the '90s.
Economist Tito Boeri, a professor at Bocconi University, says Italy incurred the debt through government giveaways two decades ago. But its biggest problem in tackling the debt now is the last 10-plus years of stagnant growth.
TITO BOERI: The income per capita, so the average income of an Italian is now in 2012 at the level of 1999. The reason behind this is structural, but what we call structural problems, structured impediments to growth.
MARGARET WARNER: That was clear during a visit to Italy's Lake District. Known for its alpine views, it's also home to an age-old manufacturing sector.
ARISTIDE STUCCHI, CEO, AAG Stucchi: We are very family-oriented people. And we are very attached to the ground where we are born.
MARGARET WARNER: Aristide Stucchi owns a lighting component firm founded by his grandfather. He feels hamstrung by a labor law that makes it extremely hard for most companies to fire a worker.
ARISTIDE STUCCHI: If the judge do not think that the reason to fire him was good, you must re-put him in place and pay him the salary of up to 60 months.
MARGARET WARNER: You go to court. How long does that whole process take?
ARISTIDE STUCCHI: A life. A life, yes.
MARGARET WARNER: But does that inhibit you in any way from hiring?
ARISTIDE STUCCHI: Yeah, that's the biggest problem now, probably, that companies think twice to hire somebody.
MARGARET WARNER: Just up the road is a family-run chain-making company. Its owner, Giovanni Maggi, feels held back by a swollen and unresponsive Italian bureaucracy.
GIOVANNI MAGGI, CEO, Maggi Group: The bureaucracy, which has a very negative effect in the economy in Italy, gave us a lot of problems, so we need a lot of permission.
MARGARET WARNER: Permitting hassles long delayed his plans to build this simple warehouse across the parking lot.
GIOVANNI MAGGI: In the last two years, nowadays, it's not possible because we are in a global market, with competition from all the world, and we must be very fast in reaction.
MARGARET WARNER: And then there is Italy's high rate of corporate taxation. Combined taxes can run more than 50 percent. Stucchi and Maggi argue that's one reason Italian companies aren't as efficient as some foreign competitors. It also leads to tax evasion.
The reasons for the Italian sport of tax dodging has even deeper roots, Maggi says.
GIOVANNI MAGGI: I think maybe it was, you know, in the mentality of the Italians. I think that most of the Italians, they don't believe the state, and most of the Italians, I'd say they like in their DNA that do not pay taxes. But this one doesn't work, I think. So we must pay taxes if we want that our country will be able to survive.
MARGARET WARNER: Economist Boeri says the underground economy is so pervasive, an estimated 30 percent of total output, that it spawned its own vocabulary.
TITO BOERI: We have the black economy and the cappuccino economy. The cappuccino is . . .
MARGARET WARNER: What's the cappuccino economy?
TITO BOERI: The cappuccino is with some milk. No, it is a color that is less black.
MARGARET WARNER: So a restaurant might declare some of its receipts, but not all?
TITO BOERI: Exactly. This would be a cappuccino type of situation.
MARGARET WARNER: Italy's stalled economy has been devastating for many ordinary Italians. Most young people aren't hired full-time these days, but under short-term contracts, giving employers little incentive to train them.
Thirty-three-year-old architect Francesco Leoncavallo juggles two jobs, just one in his field.
FRANCESCO LEONCAVALLO, architect: No contracts.
MARGARET WARNER: No contracts at all?
FRANCESCO LEONCAVALLO: No.
(through translator): In the evenings, I do a job which has no reference to what I studied.
MARGARET WARNER: And there are lots of newly poor.
The Caritas Catholic charity in Vimercate near Milan used to care mostly for immigrants. Now an increasing number seeking help are proud Italians, like pensioner Piera Raffaglio, who says her son and son-in-law both lost their jobs.
PIERA RAFFAGLIO, pensioner (through translator): My situation today is a disaster. There is more than one reason for it. Number one, the euro currency which entered Europe, it has made everything cost more.
MARGARET WARNER: Is it hard for to you come here?
Piuccia Piorola, who's run the center since it opened in 2000, says native-born Italians used to be just 3 percent of its cases. Now they're 35 percent.
PIUCCIA PIOROLA, director, Caritas of Vimercate (through translator): The problems affecting the families are unemployment, income and housing, but also family problems, conflicts, separations, single mothers. He or she who is poor always has other problems, too.
MARGARET WARNER: Yet, it was only last summer, as the global bond market started hammering Italy's interest rates, that Italians were forced to confront the trouble they were in. Under pressure from the markets and European Union leaders, like Germany's Angela Merkel and France's Nicolas Sarkozy, Prime Minister Silvio Berlusconi resigned and was replaced by unelected economist Mario Monti.
BEPPE SEVERGNINI, journalist: We decided that in an emergency we would need to rush to Dr. Monti emergency room, and that we could not fool around all night with good old Silvio and his people and his colorful entourage. And please note my understatement.
MARGARET WARNER: Italian journalists and author Beppe Severgnini says many Italians deep down welcomed intervention by their northern neighbors.
BEPPE SEVERGNINI: The reality was, we were going down the drain, down the -- we're going the Greece way. And that would be a disaster for us and for the rest of Europe and I think for the rest of the world.
MARGARET WARNER: In three months, Monti has pushed through spending cults, a hike in the retirement age and renewed taxes on primary residences. But there is resistance to his attempts to liberalize the economy from the grip of guilds that limit numbers and set minimum prices for pharmacists, lawyers, notaries and taxies.
Cabdriver Antonio Costa says he will have to work more for less money if more cabs hit the streets, while tax hikes have raised gas prices. He faults E.U. leaders for pressuring Monti without giving him much of a helping hand.
ANTONIO COSTA, cab driver (through translator): I believe Merkel could have done more for us economically, for example, euro bonds, which she refused to do and she should have. But Germany is the most powerful force. They hold the knife by the handle, so they can decide whether we have good weather or bad weather.
MARGARET WARNER: Are the Germans trying to dictate to Europe?
ANTONIO COSTA (through translator): Certainly. No doubt about it.
MARGARET WARNER: Polls show a majority of Italians, like consumer goods company manager Andrea Rendina, approve of what Monti's doing.
Do you think he's going to succeed?
ANDREA RENDINA, company manager: Provided he has the opportunity to continue working, yes, he will. Hopefully, he can do it, because, eventually, we have expert people at the right place.
BEPPE SEVERGNINI: The Italians have changed more in the last six months then they have in the last 15, 20 years. But Italy is an operatic country. Never forget that. And the crowd in the theater, they cheer the tenor until the very moment until they boo him off the stage.
MARGARET WARNER: Yet, with so much at stake, says Beppe Severgnini, perhaps bravos won't give way to boos too quickly this time.
BEPPE SEVERGNINI: Deep down, we know that is the only way to do things. Work longer. Do not waste money. Pay your taxes.
If we do that, then Italy is paradise. So, everything else is right. Look at a place like this. Look at a town like this. Look the food, the wine, the families we have. We have got everything all right.
MARGARET WARNER: All right indeed, but if Italians want to preserve the way of life they cherish, they are first going have to save it.