Six months till bailout: clock ticks for Italy

A top banking bod in Italy's Mediobanca reckons the country could need bailing out within six months, thanks to bad debts left, right and centre.

by Michael Northcott
Last Updated: 19 Aug 2013

Time to crank up the Euro-worry again. An analyst at Italy’s second biggest bank Mediobanca, reckons the government may be asking for international assistance before the year is out, if things keep going the way they are. The bank’s ‘index insolvency risk’ measure, which monitors debt, is already showing warning signs thanks to rising borrowing costs.

Antonio Guglielmi, the top analyst who expressed the concerns, says: ‘The Italian macro situation has not improved over the last quarter, rather the contrary. Some 160 large corporates in Italy are now in special crisis administration’. His words were actually in a confidential client note, obtained by the Telegraph. In it, he adds: ‘[Italy] will inevitably end up in an EU bailout request’ within six months, unless borrowing costs fall or its economy miraculously starts to pick up. 

Let’s face it; neither of those things is likely to happen in short order. Meanwhile, the country is lumbered with the third largest debt in the world (after the US and Japan) at £1.8trn, meaning any movement in debt markets is felt more keenly than in most other countries. 

Its situation may already be on an inexorable slide since the US Federal Reserve announced last month that it is going to stop pumping dollars into the global system. It essentially means, for some complicated reasons, debt will be worth less. To combat this, investors want greater returns. Italian 10-year bond yields have risen 1% to 4.8% since the US government began using harsher language on the issue.

So you see Italy’s predicament. Without positive change in either borrowing costs or economic growth, the government may as well start writing the bailout request letter. Hopefully Italy’s recently instated PM, Enrico Letta has got his eye on the balance sheet rather than ‘Ruby the Heart Stealer’, unlike his predecessor…

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