Italy is next? What does that mean, exactly?
The Italian problem- One: Debt to GDP ratio - 119%.
Two: 0 (zero) political credibility.
How's that any different from Greece? It isn't.
So what happens now? Predictably, the scenario generates two basic market reactions. One; bond yields rise, alarmingly. For the technically inclined Italian bonds have broken the crucial post-euro-era highs of 6.5% .... As an exercise and confirmation of the severity of the situation, if you like, consider the rapidly diverging European bond spreads (comparative yields - usually against the German bund) and Two; as Italian bond yields rise the cost of credit rises commensurately, which makes it more expensive for Italy to raise money to service EXISTING debt. As the debt burden rises on comparatively more expensive credit, Italy's ability to go-to-market cost effectively, so to speak, diminishes and so on and so on..
What's done is done. Global debt levels are excessive. That's old news. So why has the market singled out Italy rather than France which is equally indebted? In a nutshell, the market has little faith in Italy's ability to get-its-house-in-order and service its debt-burden. It's a global vote of no confidence in Italy's leadership.
The EU is structurally-imperiled, once again, with an economic problem not insurmountable given the diversity of the Italian economy, but rather on Berlusconi's lack of application and or ability to draw on the collective energies of the ordinary Italian to address the issue, in time and before conditions deteriorate.
Unless the EU addresses the structural concept of competent sovereign leadership, which is complex and fraught with danger, it's just more of the same..
The Italian problem- One: Debt to GDP ratio - 119%.
Two: 0 (zero) political credibility.
How's that any different from Greece? It isn't.
So what happens now? Predictably, the scenario generates two basic market reactions. One; bond yields rise, alarmingly. For the technically inclined Italian bonds have broken the crucial post-euro-era highs of 6.5% .... As an exercise and confirmation of the severity of the situation, if you like, consider the rapidly diverging European bond spreads (comparative yields - usually against the German bund) and Two; as Italian bond yields rise the cost of credit rises commensurately, which makes it more expensive for Italy to raise money to service EXISTING debt. As the debt burden rises on comparatively more expensive credit, Italy's ability to go-to-market cost effectively, so to speak, diminishes and so on and so on..
What's done is done. Global debt levels are excessive. That's old news. So why has the market singled out Italy rather than France which is equally indebted? In a nutshell, the market has little faith in Italy's ability to get-its-house-in-order and service its debt-burden. It's a global vote of no confidence in Italy's leadership.
The EU is structurally-imperiled, once again, with an economic problem not insurmountable given the diversity of the Italian economy, but rather on Berlusconi's lack of application and or ability to draw on the collective energies of the ordinary Italian to address the issue, in time and before conditions deteriorate.
Unless the EU addresses the structural concept of competent sovereign leadership, which is complex and fraught with danger, it's just more of the same..
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