This week is all about Greece, we get that. Gun to our head, our guess is that the Greek Parliament manages to pass (barely) the austerity bill that will allow it to get another hand out and avoid default.
And then when that happens, you have Greece, Portugal, and Ireland all safely ensconced (for now) under IMF-regimes that shield them from private credit markets.
The problem then turns to the other two PIIGS: Spain and Italy.
Spain gets plenty of attention. Italy needs to start getting more.
You can just start with this chart, which shows its own short-term debt blowing out.
Italy’s problem is two-fold.
First, its economy is not particularly healthy. We looked at some of the data in late May, and found that while it’s no Spain, it’s not in any kind of enviable position.
The other problem is political.
Berlusconi’s personal foibles (and corruption) are well known. And as you’d expect of a government run by him, it appears his ministers are eating each other alive now, with one top minister accusing the economic minister of making austerity cuts to every department but his own. The economic minister was even accused of purposely trying to bring down the government.
It’s the combination of these that have caused the ratings agencies to get choppy in recent weeks, with a major fallout being felt by the banks.
A multi-month chart of UniCredit, the big Italian bank, is not a pretty thing:
So when Greece gets (temporarily) resolved, pay attention to Italy.
As a reminder, its public debt makes Greece look like a total irrelevance.
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