ABSTRACT
South Italy and East Germany share three common and important features. First, they both have a persistent and large amount of net imports. Second, this systematic and huge deficit of the trade balance implies dependency on external funding, mainly based on public transfers. Third, they have a persistent convergence gap compared to the rest of the country which is more wealthy and industrially advanced. Something which makes EG distinctive with respect to SI is the lower banking integration of the 'Neue Bundeslander' with the 'Alte Bundeslander'. This chapter explores the implications of this peculiar feature of EG. It also examines what lessons Germany can learn from Italy in this specific context. The chapter explores the different patterns of dependency on external funding of SI and EG and the role played by public transfers. Itexamines the patterns of countrywide banking integration and their implications for the financial support to the less-developed territorial economies.
