Italy Set for Bailout as Economic Conditions Worsens

By TraderVox.com

Tradervox.com (Dublin) – Economists are predicting that Italy will become the sixth country in the euro region to seek international bailout. Italy is the third largest economy in the euro area and it is a member of the G7 nations. However, the country has the third largest debt market with its debt-to-GDP ratio standing at 120 percent which is the goal set for Greece for 2020. Most of the economists are saying that Italy has escaped the spotlight only because investors are looking at Spain; but warned that with the ECB rate decision pending, Italy can easily slip into the limelight.

Italy’s efforts at the EU Summit indicate that the Prime Minister Mario Monti is worried about the state of the economy in his own country. Monti inherited a government in huge economic turmoil from Silvio Berlusconi in 2011 and embarked on a series of reforms that created some market confidence.

However, the country’s economy has since contracted by 0.8 percent in the first quarter as compared to stagnation of the euro zero. In addition, purchasing manager’s indicators in the country have shown a contraction in all sectors in the second quarter. In the past two months, the retail sales for the country have been below the expectation coming in at negative 0.8 and negative 1.6 respectively.
The country’s economy is slowing down as global economy worsens and the austerity measures in the region take effect. It is evident that the public is not supportive of Mario Monti’s actions and neither is the market. This is coming amidst great pressure as 10-year bonds shoot past 6 percent which is unsustainable given the growing contraction and the high debt-to-GPD ratio.

With these conditions, it is clear that Italy cannot meet its debt repayment obligations hence may request for bailout making it the sixth country in the region to do so. While Monti has some political support from parties in parliament, it will be hard for lawmakers to support further reforms which are needed to give Italy some relief from the market. Some of the reforms that are needed involve pension and labor reforms.

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