Italy - financial and political stability...
Posted: July 15th, 2022, 7:05 am
Some interesting news coming out of Italy yesterday, where things might be coming to a head again regarding the stability of their financial and political situation -
Eurozone rocked as Italy’s technocrats lose their grip on power -
Mario Draghi's potential departure marks a dangerous moment for Italy and its economy. It marks a dangerous moment for Italy and its economy, and threatens to rock the wider eurozone.
At more than 150pc of GDP, Italy’s debt is far larger than that of any other major economy in the currency area. Spain’s amounts to 118pc of its output and France is at 113pc. Germany is far less indebted with its Government borrowings equivalent to a mere 69pc of GDP.
As it stands, Italy’s debt is one-fifth higher than it was in the summer of 2012 — at 125pc of GDP — when Draghi pledged the ECB would do “whatever it takes” to support the eurozone. His unexpected but extremely valuable promise helped get the sovereign debt crisis under control.
Rome has been able to support surging debt levels thanks to rock-bottom interest rates. The cheap borrowing Italy relied on started to wobble recently, however, as central banks including the US Federal Reserve and the Bank of England raised rates to combat soaring inflation.
While the ECB has been more cautious, borrowing costs have risen in financial markets nonetheless. For Italy in particular, that risks making its debt pile unsustainable.
The country’s 10-year borrowing costs in bond markets have already risen from 0.7pc a year ago to 1.17pc at the start of 2022, to a current 3.4pc.
During the sovereign debt crisis, economists worried that sustained bond yields of above 7pc would leave Italy on an unsustainable path, its Government unable to cut spending or raise taxes enough to keep a lid on borrowing.
Given the increase in debts over the past decade, Jack Allen-Reynolds at Capital Economics now puts that tipping point interest rate at 5pc.
Elwin de Groot at Rabobank says the turmoil “is not providing any support for the single currency”, as the euro has fallen to parity with the dollar for the first time in 20 years.
https://www.telegraph.co.uk/business/2022/07/15/eurozone-rocked-italys-technocrats-lose-grip-power/
Cheers,
Itsallaguess
Eurozone rocked as Italy’s technocrats lose their grip on power -
Mario Draghi's potential departure marks a dangerous moment for Italy and its economy. It marks a dangerous moment for Italy and its economy, and threatens to rock the wider eurozone.
At more than 150pc of GDP, Italy’s debt is far larger than that of any other major economy in the currency area. Spain’s amounts to 118pc of its output and France is at 113pc. Germany is far less indebted with its Government borrowings equivalent to a mere 69pc of GDP.
As it stands, Italy’s debt is one-fifth higher than it was in the summer of 2012 — at 125pc of GDP — when Draghi pledged the ECB would do “whatever it takes” to support the eurozone. His unexpected but extremely valuable promise helped get the sovereign debt crisis under control.
Rome has been able to support surging debt levels thanks to rock-bottom interest rates. The cheap borrowing Italy relied on started to wobble recently, however, as central banks including the US Federal Reserve and the Bank of England raised rates to combat soaring inflation.
While the ECB has been more cautious, borrowing costs have risen in financial markets nonetheless. For Italy in particular, that risks making its debt pile unsustainable.
The country’s 10-year borrowing costs in bond markets have already risen from 0.7pc a year ago to 1.17pc at the start of 2022, to a current 3.4pc.
During the sovereign debt crisis, economists worried that sustained bond yields of above 7pc would leave Italy on an unsustainable path, its Government unable to cut spending or raise taxes enough to keep a lid on borrowing.
Given the increase in debts over the past decade, Jack Allen-Reynolds at Capital Economics now puts that tipping point interest rate at 5pc.
Elwin de Groot at Rabobank says the turmoil “is not providing any support for the single currency”, as the euro has fallen to parity with the dollar for the first time in 20 years.
https://www.telegraph.co.uk/business/2022/07/15/eurozone-rocked-italys-technocrats-lose-grip-power/
Cheers,
Itsallaguess