The euro zone’s debt crisis has taken a dangerous turn with worries that it could spread to Italy, which is the region’s third biggest economy.
The financial markets and EU officials say the best and cheapest way to protect Italy from contagion would be decisive action this month on a second bailout for Greece.
The bloc’s finance ministers defend the length of time it is taking to work that out. Luc Frieden of Luxembourg said: “We can’t solve this all in just one morning, we have to evaluate the effects and consequences, so we must just take the necessary time.”
Economists say Italy is at risk both because of its domestic political instability and the fact that investors are making speculative trades based on the possibility that the euro zone could break up.
Rome has 1.6 trillion euros of outstanding government bonds, any increase in borrowing costs would severely disrupt its efforts to cut a debt mountain which is equivalent of 120 percent of Italy’s gross domestic product.
Italy’s economy under attack
Europe’s financial markets continue to be rocked by euro zone worries. To get some insight we spoke with Marco Caprotti, Senior Analyst with Morningstar Italy in Milan and first asked him: what is behind the recent massive speculative attacks on the euro zone markets.
“These attack don’t actually come as a surprise especially for those who have looked at the dynamics of international markets in recent months. If we look at the word “PIGS” which is used as shorthand for the countries most at financial risk (Portugal, Ireland, Greece and Spain) in fact there are two ‘I’s and one of these stands for Italy.
euronews: But isn’t the problem in Italy more political than economic?”
“Abroad Italy is perceived as politically weak. And a politically weak country is a vast opportunity for international speculators. Then there is the weakness of the EU which has failed to reach common decisions on very serious problems, as we have seen in recent weeks in relation to the debt of some countries (Greece, Portugal), which are small, but which are vital to the stability of the euro area.
euronews: “Is Greece the start of a new financial crisis or is this just the end of the old (2008) crisis?”
“We believe that Greece is the beginning of a new crisis. As long as the various problems there are not resolved, Greece will probably continue to be under attack by international speculators – who are just doing their jobs.”