Home >> WORLD

Italy may be next to request EU bailout

Source:Xinhua Published: 2012-6-12 16:32:26

Italy, the eurozone's third largest economy, could possibly seek a bailout from the European Union (EU) following Spain's rescue appeal on June 9.

The Italian financial newspaper Il Sole 24 Ore believes the agreement reached by eurozone finance ministers to shore up Spain's teetering banks represents "the removal of a filter" that separated Spain and Italy from the group of heavily indebted EU countries.

Without a stabilization of borrowing costs in debt markets for Italy and Spain and an agreement by all eurozone countries on the banking system, the uncertainty and risks for Italy will grow higher, the Italian daily Il Corriere della Sera reported.

Jurgen Michels, an economist at Citigroup, says Italy will follow Greece, Ireland, Portugal and Spain, and eventually seek an aid package amid the worsening European debt crisis.

Italy's public debt currently accounts for 120 percent of gross domestic product (GDP). Official statistics have confirmed that in the first quarter of 2012 Italy's GDP slumped 0.8 percent, the biggest fall in three years.

Considering the European economic situation and austerity measures taken so far, Italy's economy will continue shrinking until the end of 2013, the Organization for Economic Cooperation and Development said.

Italy's banking system has remained stable, meanwhile, and did not have to endure the collapse of a property bubble like in Spain.

Moreover, the banks in Italy have not requested any bailouts since the financial crisis began in 2008, and several major banks have successfully recapitalized since last year.

However, those banks hold a fair amount of Italian bonds, which will probably increase their exposure to a debt crisis.

The U.S. ratings agency Moody's last month downgraded 26 Italian banks including the two biggest, UniCredit and Intesa Sanpaolo. The action came as net profits declined and troubled loans and loan-loss reserves roiled the banks.

A Moody's report released Monday warned that Spain and Italy would be highly reliant on European Central Bank funding after a bailout of Spain's banks was arranged during the weekend.

Furthermore, analysts believe an increased possibility of Greece's exit from the eurozone would probably lead to a downgrade of Italy's sovereign credit rating.

Daniel Gros, head of the Center for European Policy Studies, said the eurozone has no "margins to help Italy" after Spain, and that Italy should help itself if the situation continues to deteriorate.

Italy has achieved a fiscal surplus and its bond auctions have gone well but Rome still needs to make more effort, Gros says.

Ahead of Spain's rescue appeal, Bank of Italy Governor Ignazio Visco said the political deadlock in Greece and the difficult situations in Spain's banking sector have made tensions re-emerge in the market.

As to Italy, Visco said the tensions were not over, and Rome should take measures to reform and regain confidence in order to consolidate the country's fiscal position in the short term.

Posted in: Europe