Evans-Pritchard: Italy Next to Crumble in Europe

Thursday, 30 Dec 2010 09:30 AM
By Greg Brown

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,â€