Could Italy be next for EU bailout ? Strike 2 in new credit crunch .

Italy’s former PM Silvio Berlusconi has been sentenced to seven years in jail and banned from public office for having sex with an underage prostitute.This was the main headline out of Italy but there was also another that didn’t get much attention .Mediobanca, Italy’s second largest bank, said its “index of solvency risk” for Italy was already flashing warning signs as the worldwide bond rout continued into a second week, pushing up borrowing costs,less supply demand high = HIGH price )

The Italian macro situation has not improved over the last quarter, it has actually gotten worst . With a new anti austerity government , looks to get even worst .

Italy has €2.1 trillion (£1.8 trillion) debt is the world’s third largest after the US and Japan.but is only the world 8th largest economy .

Rank Country/Region GDP (Millions of $US)
1 United States 14,991,300
2 China 7,203,784
3 Japan 5,870,357
4 Germany 3,604,061
5 France 2,775,518
6 Brazil 2,476,651
7 United Kingdom. 2,429,184
8 Italy 2,195,937
Source -Wiki

Any serious stress in its debt markets threatens to reignite the eurozone crisis. This may already have begun after the US Federal Reserve signalled last week that it will begin to withdraw QE and the ECB Mario Draghi has also been pulling liquidity . The cracks has started with Sibor in China last week , could this be the start for round 2 of the global crisis ?

Mediobanca is particularly concerned about the gap that between yields on short-term bills (BOTs) and longer-term bonds (BTPs) near maturity that expire at the same time. BOTs retiring on July 31 are trading at a yield of 0.48, while the equivalent BTP is trading at 0.74pc. The reason is that BOTs are protected from debt restructuring.

Italian 10-year yields spiked to 4.8% .

The key number before was 6/7% that meant a country needed a bailout . Looking at the situation 5% / 5.25% is looking more realistic .

Could it be time to call ” Super Mario “ back again to sort it out . We could but the problem is in a democracy is voters vote with their heart and not there head which is totally understandable people need to live today as tomorrow is just a promise .

Lets see but I am calling this strike 2 , first one was China credit problem my blog on it :

1.Is the Chinese bubble bursting ?! Perfect storm ahead

Cash is king ,

Regards

Tony Evans
Tokyo

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