Daily Management Review

The Real Risk In Europe That Investors Should Be Worrying About Is Italy And Not Spain


10/08/2017




The Real Risk In Europe That Investors Should Be Worrying About Is Italy And Not Spain
Despite recent tensions in Spain with Catalonia possibly declaring independence in the coming days, the rise of populist politics in Italy should still be front and center for investors in Europe.
 
"Italy is not generating sustained growth and it still has the issue of bad loans," a Brussels-based official, who preferred to remain anonymous due to his participation in key EU economic meetings, told the media.
 
"The euro zone is growing, even Greece is growing … But let's not get carried away with the short-term success," he added.
 
Since the days of the sovereign debt crisis of 2011, broadly, the region has seen improvement. Business activity has expanded, unemployment has fallen and growth has returned to the bloc. But the biggest risk to the euro zone at the moment as seen by many European economists is Italy. according to recent forecasts from the European Commission, marking slightly above that threshold in 2018, the economy is set to grow below 1 percent this year.
 
Added to that, new elections in Italy are just around the corner, said Claus Vistesen, the chief euro zone economist at Pantheon Macroeconomics.
 
"It's certain that the Five Star Movement (Italy's populist party) will do very well in the upcoming election," Vistesen said.
 
Though there's not a certain date set, Italian voters are due to elect a new government at the start of next year. the same numbers as the governing PD Party, led by former Prime Minister Matteo Renzi, is being polled by the populist Five Star movement at the moment.
 
Italy's compliance with European fiscal rules is at risk due to Five Star's stance. As they need to respect a 3 percent threshold for their deficit-to GDP (gross domestic product) ratio, these rules constrain the ability of euro zone countries to spend. In line with European rules, Italy's deficit is set to reach 2.2 percent of its GDP this year. But nations are also supposed to keep their public debt below 60 percent of their GDP and its government debt is already above EU's limit. It will rise to 133.1 percent of GDP this year, forecasts from the European Commission suggest. Italian finances could be further jeopardized by a populist government.
 
"Beyond Catalonia, it is the Italian election we are concerned about," Andrea Cicione, head of strategy at TS Lombard, said.
 
Given their policies to increase spending, for Italy's fiscal policy, the rising presence of populist parties is a risk, he underlined. Analysts seemed divided over its impact on the euro zone when it comes to Catalonia. Though he admitted that "the longer the situation drags, the riskier it will get for stock markets," Vistesen said that Catalonia is still a long way from becoming independent.
 
After an illegal referendum on Catalonia's independence, Spain's Ibex 35 stock index has been on a downward trend for most of the week.
 
"We see a risk that this escalation may damage the coordination and communication between the two governments, which is essential to Catalonia's ability to service its debt on time and in full," Standard & Poor's warned on Wednesday.
 
(Source:www.cnbc.com) 






Science & Technology

Artificial Intelligence Helps NASA Find An 8th Planet In Orbit Of A Distant Star

Australian Research Success Could Mean Shatterproof Cell Phones Could Soon Be A Realityv

Top ten hi-tech events of the year

Tesla Considering Designing And Developing AI Chips On Its Own To Support Its Auto-Pilot Project

Verizon to introduce 5G in five American cities in 2018

Airbus, Rolls-Royce, Siemens to create an electric aircraft

Study Finds Treatment Efficacy Could Be Sacrificed For Reduced Side Effects In Cancer Therapies By Patients

Some Information About Their Self-Driving Car Research Has Been Disclosed By Apple Scientists For The First Time

A Massive Data Breach Was Covered Up By Uber By Paying Up Hackers

A City Is Can Be Converted To A Living Organism, Showcases China’s Huawei

World Politics

World & Politics

Phase Two Of Brexit Talks, Announced On Friday, Would Be Tough, Analysts Say

Elections in Italy: the last chance of Eurosceptics?

15 countries with the highest level of organized crime

Athens agreed with international lenders

EU Pressure Reportedly Forces UK To Bow Down, Could Agree To Pay £50bn For Brexit Divorce

$1 Billion Is The Price For Freedom For Arrested Saudi Prince In Corruption Crackdown: Reports

U.S. Capital Washington Appears To Be In Range Of The Latest Missile Launched By North Korea

Ten biggest fears of millennials