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Wednesday, June 13, 2012

Italy's debt worries add urgency to Merkel's dream of integration




There simply isn't enough money under current bail-out arrangements to rescue Italy should it require help. And markets are once more preparing for that eventuality.

Rome became a fully paid-up member of the 6pc-plus club on Tuesday as its cost of borrowing jumped to 6.14pc. Its predicament is different from Spain's and Spain's was different from Greece's. But that didn't stop Spain needing financial aid.

Italy's budget deficit is not the primary concern (although its shrinking economy is a worry) but its ability to service €2 trillion (£1.6 trillion) of debt – more as a share of GDP than anyone bar Greece and Japan. It has to borrow €35bn a month.

Any further negative shocks and its access to jittery capital markets is at risk. There's only one way to fireproof Italy and that's for France and Germany to step in and agree fiscal, and therefore political, integration with Rome.

Angela Merkel has already held out this as her ultimate vision for Europe but it may have to happen much sooner, and under much more trying circumstances, than even she's envisaged.

The Telegraph

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