Is Italy Next?

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Despite being put under IMF monitoring, there is no hope for Italy to receive bail-out money. Borrowing rates are soaring in the country, and word from the G20 summit in Cannes is that there is not enough money left to bail out the large Italy economy. Italy is now operating under the watchful eye of the IMF, which may or may not have been at the invitation of the Italian prime minister Silvio Berlusconi. <--more--!>

Berlusconi has refused to substantiate reports that he is to step down as Prime Minister to allow someone else to form government or to push for early elections. Berlusconi does not have enough confidence in the Italian Parliament to pass the reforms that are being called for by investors to increase growth and cut debt. The President can choose to let a government be formed by technocrats rather than call an election, although a political government can still be formed if a loss of confidence vote passes in Parliament.

A large part of the problem seems to be Berlusconi himself. After being rocked with a number of scandals, Berlusconi barely clings to power. His critics say that he puts his own business interests ahead of the interests of the country. His People of Freedom coalition has failed to produce any policies to try and combat the growing debt, which sits at €1.9 trillion.

The future in Italy looks dim. The European Central Bank has been buying government bonds to try and keep the Italian economy from going over the 7 per cent yield level, which is where both the Portugese and Irish governments were forced to accept bailouts. If the Italian economy succumbs to pressure it is big enough to bring down the entire Eurozone with it. With rumours that Fiat, Italy’s largest private sector employer, may be looking to vacate the country where it has been traditionally based, the Italian economy does not show any signs of looking up.

Greece’s Instability Could Be Spreading

The debt crisis in Greece is starting to affect the rest of the Eurozone, which could have disastrous effects not only on Europe but the world over. Italy’s fragile recovery has been put on warning from Moody’s that its’ credit rating is under review for the next 90 days. This announcement has sent risk markets spinning. The worry is that the weak Greek economy would act as a contagion and spread to other delicate economies in Europe. If Greece were to default it could spell the end of the balance that has been achieved in Italy, Ireland, Spain and Portugal. Continue reading ‘Greece’s Instability Could Be Spreading.’

Greece’s Sovereign Debt Rating Downgraded to CCC

Standard & Poor’s has downgraded the Greek economy to a rating of CCC from B, the lowest possible. They believe that there will likely be one or defaults on the failing country’s national loans. “Risks for the implementation of Greece’s EU/IMF borrowing program are rising, given Greece’s increased financing needs and ongoing internal political disagreements surrounding the policy conditions required,” said S&P in a statement.

No other sovereign nation has as low a rating as Greece does, and only Ecuador has a worse rating. This comes after Obama has pressed Germany to structure a new bailout for Greece. It is possible that the economy could be downgraded to an ‘SD’, or selective default, if Greece has to take on a debt restructuring or a maturity extension on terms that constitutes a distressed debt exchange. This whole issue has arisen because of a failure of the Greek government to accurately portray the national debt and a slow as a result of economic recession.

S&P has said they would rather have Greece refinance their debt than using a bond swap or extended maturity on bonds as a method of debt management. The outlook is also negative, with the distinct possibility that there will be another downgrade coming in the next 12 to 18 months. Greece has made statements to the effect that they feel that S&P has overlooked all of the EU/IMF deliberations that are currently going on to figure out a way out of the intense clusterfuck of the Greek economic crisis.

Read more about Greece’s economic troubles here.

G20: Global Economic Health A Priority

In addition to tripling the lending capacity of the International Monetary Fund (IMF) to $750 billion, the G20 summit saw world leaders take several other measures to ensure international trade resumes, protectionism is avoided, and countries struggling with the financial crisis receive the necessary assistance. A draft communique issued by the summit Thursday outlined. Continue reading ‘G20: Global Economic Health A Priority.’

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