Evans-Pritchard: Italy Next to Crumble in Europe

Thursday, 30 Dec 2010 09:30 AM

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Investors fearful of the spread of the eurozone crisis to its bigger economies have begun to demand higher returns on Italian sovereign debt, up 10 basis points to 4.86 percent on 10-year bonds following a weak short-term auction.

The fear is that the Italian economy will slip into the miasma of Greece, Portugal, and Spain, reports Ambrose Evans-Pritchard in London daily The Telegraph.

Part of the problem, Evans-Pritchard reports, is that Germany turned against issuing eurozone bonds to support the failing southern economies and rejected an increase in the 440 billion euro ($585.05 billion) EU rescue fund.

Another risk is that Italy is simply too big to be saved by the healthier EU economies, if it came to that, Evans-Pritchard writes. Italian public debt, while balanced somewhat by high private savings and low private debt, is nevertheless set to reach 120 percent of GDP, the Telegraph international business editor warned.

“Low private debt may equally reflect deep pessimism in a country where growth has been glacial for a decade, productivity has fallen since 1995, and global export share is in steep decline,” writes Evans-Pritchard.

Greece continues to struggle as larger economies, including Spain, bat away negative headlines while scrambling to shore up finances. That has new entrants to the currency union like Slovakia questioning the wisdom of jumping from one sinking ship to another, even if it is larger.

Put simply, new EU nations are being asked to help pay for Greek retirements as the price of admission to the euro club.

Slovak politicians are grabbing hold of this sentiment to argue against having joined the single currency, writing newspaper editorials promoting a return to the former national currency.

"It seems that they allowed us to enter only to pay for their debts," Petra Hargasova, a 22-year old economics student, told The Associated Press.

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