ITALY; Next Victim of the Euro Debt Crisis?


July 12, 2011

ITALY; Next Victim of the Euro Debt Crisis?

Euro-zone finance ministers held their last meeting before a summer recess  to focus on a second aid package for Greece. But over the weekend, their attention was switched to a far more important euro-zone member: Italy, the third-largest economy in the single currency bloc.
There is now concern that the debt crisis could spread to Italy, partly due to the nation’s high government debt and sluggish economy, but also concerns that Italy’s Prime Minister Silvio Berlusconi may be trying to thwart efforts by Italian Finance Minister Giulio Tremonti to cut spending and get the budget deficit under control.
The Italian authorities have moved to rein in short-selling on the Milan stock exchange as fears mount that the country could become the next victim of the sovereign debt crisis. Italy’s debt-to-GDP ratio of 120 percent is the second highest in the Euro bloc after Greece. German newspaper Die Welt at the weekend quoted an unnamed European Central Bank source as saying the European Financial Stability Facility, the euro zone’s sovereign bailout fund, which has a nominal size of $615 billion, was not large enough to protect Italy.
On Monday stocks tumbled on Wall street, amid concern Europe’s debt crisis will spread. The Standard & Poor’s 500 Index suffered its largest two-day drop since March 16. Asian and European stock markets were following the same fate.
“The size of Italy’s economy makes sovereign credit issues there a much greater concern,” said Gary Flam, who helps oversee $6.5 billion at Bel Air Investment Advisors. “Greece, Portugal and Ireland are manageable given the small size of those economies relative to the EU. Once you cross the threshold into Spain and Italy, you’re taking a big step up. That’s a major negative.”
The EU has “got to put an end to the uncertainty surrounding Greece and the contagion impact that it’s having,” Andrew Bosomworth, a fund manager at Pacific Investment Management Co., which runs the world’s biggest bond fund, said in an interview with Owen Thomas and Francine Lacqua on Bloomberg Television’s “Countdown.”

Publisher: Salient News