Blog Post

Italy with the third biggest national debt in the world and ratings for its bonds at an all time low looks set for a tough time.

Italy, like many other countries, is having considerable difficulties in raising capital. IOU are not what they used to be with the credit markets in this conditions. Furthermore the low ratings mean that Italy’s bonds offer much higher yield than other countries’.
This coupled with high national debt and a deep and long recession looming over our heads is the perfect recipe for disaster. disaster here being bankruptcy.

Presently the yield on Italy’s ten year bonds is about 144pt. That is a tall order, especially for a country whose economy has been weak ever since I can remember and doesn’t look to be going anywhere in the near future.

Where is Italy going to find the dough to pay.

What a recession brings, shallow though as they claim it will be (at least in Italy), is a decrease in tax revenue - worse still is Italians habit of dodging taxes in ways you can’t even imagine. Italy’s previous government worked hard to increase tax revenue. As usual, it did not manage to hold on to power long enough, to prove that its laws actually worked and it wasn’t only a one-off scare that convinced Italians to cough-up.

Bankruptcy is very real, and just behind the corner if 2009 turns out to be as bad as economists predict.

If the s**t hits the proverbial fan will the EU be ready to bail out Italy? Or rather, can the EU afford to let one of its biggest countries (population-wise) to go tits-up?

I don’t think so. My bet is on the bail-out option.
This considered those bonds look pretty inviting.