tag:blogger.com,1999:blog-36227136.post3832942680658408031..comments2024-01-16T08:40:53.682+00:00Comments on <a href="http://www.openeurope.org.uk">Open Europe</a>: Is Italy next in line?OEhttp://www.blogger.com/profile/00556463374230498875noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-36227136.post-55422304449479865032012-06-13T21:12:29.278+01:002012-06-13T21:12:29.278+01:00If things really will go bad probably we first wil...If things really will go bad probably we first will see Spain (proper, not its bankingsector) going. Not Italy directly.<br /><br />The problem for the EZ, now 7% is seen as the cliff, may be for Italy even a bit more. But looking at Portugal and Ireland rates can quickly go to 10+% and none of the 2 can carry that.<br /><br />Another part of that problem being that EZ reaction is very slow (certainly compared to market reactions).<br />The ESM is not yet approved and therefor operational and anyway too limited to safe Italy. If Spain proper goes (not far from now) which doesnot seem unlikely the scenario presented for Italy is not very credible the Spanish rescue would take all the remaining resources of the EFSF.<br />If the ESM is not yet operational and/or will be combined with EFSF too small anyway for Italy. There would not be a safety-net in place for Italy. Which in itself will create a lot of downward price pressure on its bonds. As an extended net will likely take another year, providing it is approved in the first place.<br /><br />Leaving de facto the ECB as the only white knight and will these bail the rest of the EZ out (for the third time) and ruin its BS and risk civil war within its ranks?<br /><br />With Italy it is the refinancing that could cause the problem. And not only the direct refinancing but also the fact that a future refinancing would most likely be seen unsustainable. Because everybody is selling existing bonds. Which can take place in a higher pace than the refinancing (have Greece and Spain shown). These 2 effects could cause a sort of chain reaction (like Spain with its banks). One causes the next which causes more of the first etc.<br /><br />My bet would be go now for a PSI in both Spain and Italy. They cannot go to the markets for the next 2-3 year minimum anyway as they are kept alive by all sorts of measures but stand alone they are finished. The present measures are simply too costly. Require roughly 2x the amount for roll overs. Better a PSI possibly for Spain and Italy only in the term of the loans (make them all 10,20,30 year).<br />The gap can be filled by EFSF/ESM loans which would then be rather marginal. You only finance the deficit, not the refinancing plus a lot of bondsales.Riknoreply@blogger.com