As the Eurozone crisis continues to roar onward, and Spain in the process of receiving a $125 billion or so bailout, there are now fears that the contagion is going to spread to Italy. Italy's economic fundamentals are apparently better than that of Spain but they have a higher debt load of more than 2 trillion euros at some 120 per cent of their GDP, much higher than Spain. Surging borrowing costs for Italy could quickly become disastrous.
Below are two articles, one from The UK Daily Telegraph and the other from Bloomberg. There's also a short (very short) video included entitled "Economic Collapse for Dummies" to help put all this into perspective...
Italy in focus amid fears of contagion
By Louise Armitstead
8:12PM BST 10 Jun 2012
http://www.telegraph.co.uk/finance/f...contagion.htmlItaly must make more progress with its financial reforms to avoid being targeted by traders looking for the “next in line” for an international rescue after Spain’s request for help.
Economists and analysts warned that Italy could face a turbulent few days amid concerns about contagion from Spain.
Daniel Gros, head of the Centre for European Policy Studies in Brussels, said: “After Spain, there will not be the margins to help Italy. It will be defenceless and forced to help itself if the situation deteriorates.”
The Italian business newspaper Il Sole 24 Ore said the €100bn (£80bn) deal to prop up Spain’s banks “represents the removal of the filter that separates our country from the group of other countries in difficulty”. Another paper, Corriere della Sera, said: “Italy is now the only country in difficulty that has not had to ask for a bail-out.”
Compared to Spain, Italy’s banks are stronger and its borrowing lower. But last week Moody’s said Spain’s banking troubles could be “a major source of contagion” for Italy. The rating agency downgraded 26 Italian banks last month, including UniCredit and Intesa Sanpaolo.
Italy Moves Into Debt-Crisis Crosshairs After Spain
By Andrew Davis and Nadine Skoczylas
June 11, 2012 8:01 AM ET
The 100 billion-euro ($125 billion) rescue for Spain’s banks moves Italy to the frontline of Europe’s debt crisis, putting pressure on Mario Monti’s unelected government to avoid succumbing to a market rout.
“The scrutiny of Italy is high and certainly will not dissipate after the deal with Spain,” Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London, said in an interview. “This bailout does not mean that Italy will be under attack, but it means that investors will pay attention to every bit of information before deciding to buy or to sell Italian bonds.”
Italy has more than 2 trillion euros of debt, more as a share of its economy than any advanced economy after Greece and Japan. The Treasury has to sell more than 35 billion of bonds and bills per month -- more than the annual GDP of each of the three smallest euro members, Cyprus, Estonia and Malta.“The problem for Italy is that where Spain goes, there’s always the perception that Italy could follow,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London said in an interview. ’’There is insufficient differentiation within the financial markets. It is clear as the light of day and has been that Spain’s fundamentals are a lot direr than Italy’s. That hasn’t stopped Italy suffering from Spanish contagion.’’http://www.bloomberg.com/news/2012-0...nk-rescue.html“If Italy has a problem with accessing the markets because investors lose confidence in the Italian ability to do the right thing, the ECB will be drawn into the fire,” said Thomas Mayer, an economic adviser to Deutsche Bank AG, in a telephone interview. “That could pose a potentially lethal threat to European monetary union.”
Given the size of Italy’s debt, only the ECB has the firepower to rescue the country and yet deploying that ammunition -- through buying back bonds or making more long-term loans -- may prove unacceptable to Germany and its allies in northern Europe, Mayer said.
“The ECB will probably have to restart buying bonds but there will be a lot of sellers into that of people who are worried that Spain is the next Greece and Italy the next Spain,” said Daniel Gros, director of the Center for European Policy Studies in Brussels.
And to put all this into simple perspective, we present the "Economic Collapse for Dummies", basically everything you need to know about the global economic collapse in just 23 seconds. Note the order of collapse suggested in the vid and where we sit currently: