Daily Management Review

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


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.

Science & Technology

Over 500 Genes Impacting Intelligence Identified By Scientists

MIT Scientists Say It Could Be Just 13 Years For Commercialization Of Nuclear Fusion

Apple patents MacBook with a keyboard screen

Vero: An Instagram killer?

Wacky Weather Causes ‘Split In The Polar Vortex’

Smart And Adaptive Artificial Eye Developed By Researchers At Harvard

NASA’s Mars Mission To Make Use Of Cold War-Era Atomic Rockets

Israel Completes Mars Habitat Simulation Experiment

Just $24 Earned By Hackers From The Huge Cryptojacking Campaign Conducted Last Week

New Molecule That Quickly Fights Cancer Cells Identified By Swedish Scientists

World Politics

World & Politics

Christine Lagarde: there’s no winner in trade wars

10 best countries for freelancers

Alarming Concerns Or Driving Force Towards Green Energy? – Bitcoin Growth Comes At Environmental Cost

Catalan authorities refuse to greet the King of Spain

Ten Top Politicians To Be Investigated By Greek Parliament On Charges Of Taking Bribes From Novartis

The cloudy future of Saudi Arabia

Australia To Welcome Britain On The Latter’s Interest In Joining TPP

South African President Zuma Finally Resigns, New President To Be Elected Soon