Eurozone Pressures Extend beyond Greece, to Spain and Italy

Spanish Prime Minister Zapatero_ Socialist Party suffers massive losses in city and regional elections

Spanish Prime Minister Zapatero_ Socialist Party suffers massive losses in city and regional elections

With Standard & Poor’s cutting their outlook on Italy’s economy from “stable” to “negative”, along with the massive political loss suffered by Spain’s Socialist Party, have worsened existing debt concerns in Europe.

Italy accounts for almost 20% of all government debt in the European Union, while Spain’s economy is the fourth-biggest in the Eurozone.

Speculation that these two countries might likely be dragged into the political and financial chaos in Europe that has already included a few bail-outs and the current frenzy of arriving at some sort of salvation deal for Greece, led to a sharp drop in the Euro, which fell below $1.40 for a while Monday, while most European stock markets closed over 1% lower yesterday

Will Spain need a Bail-out?

With the defeat of Socialist Party over last weekend in regional and city elections implying that Spanish Prime Minister José Luis Rodriguez Zapatero’s political party is likely to lose as many as six of the seven regional governments they control to the opposition Popular Party, led by Mariano Rajoy, this incident has sparked off enormous concerns regarding the ability of Zapatero’s  government to deal with deficit reduction in the euro zone’s fourth-largest economy and avoid the need for an international bailout.

According to market analysts, the political loss of Spain’s Socialist Party was brought on by a deep economic crisis and related high unemployment levels (21%).

The Spanish economy being twice the size of Greece, Ireland and Portugal combined, though recent reforms in the banking sector had given the Government some protection from the financial troubles being witnessed by Greece, Portugal and Ireland, in light of the recent political losses, Spain would need to step up its game if it wants to continue to protect its economy.

With Madrid aiming to lower its budget deficit from 9.3% in 2010 to 6% of the GDP in 2011 and further to 3% by 2013, Prime Minister Zapatero, in response to the public calls for early national elections, said on Sunday that he does not intend to hold early elections and that the top priority for his government is to see through budgetary reforms that would protect Spain’s economy from suffering.

Miguel Angel Fernández Ordóñez, Governor of the Bank of Spain stated on Monday the need for the Spanish government to push forward with economic reforms to lower the country’s debt.

Italy’s Downgrade

In a report published last weekend, Standard & Poor’s downgraded Italy’s credit rating outlook to from stable negative, given the country’s declining economic growth and “diminished” prospects for a debt reduction by the Italian government.

This report, which affirmed Italy’s previous long-term A+ rating, followed the political setback suffered by the centre-right coalition of Silvio Berlusconi in local mayoral elections.

Citing Italy’s current growth prospects as being weak, in addition to apparently wavering political commitment towards reforms that would enhance productivity, the S&P report said that, “Potential political gridlock could contribute to fiscal slippage. As a result, we believe Italy’s prospects for reducing its general government debt have diminished.”

Dismissing this downgrade, Mr Giulio Tremonti, Italy’s finance minister said that Italy had always been “prudent” in its estimates, in reference to the cut in economic growth forecast by the government last month from 1.3% to 1.1% for 2011 and from 2% to 1.3% for 2012.

Adding that the government would “intensify” reforms, Tremonti added, “As has been demonstrated in past years, and in the more recent years of this crisis, Italy has, is and will be a country with the economic and political resources to do what is necessary to always respect the pledges it has made”.

image courtesy reuters

Avatar
Vrushti Mawani
Vrushti Mawani, News Editor Industry Leaders Magazine (www.industryleadersmagazine.com)

Recent Posts

Volvo Cars’ path to an all-electric future just got bigger, bolder and better

Volvo Cars’ path to an all-electric future just got bigger, bolder and better

Volvo Cars will stop producing gas and diesel cars over the next 9 years, replacing the fleet with all-electric cars. ...
22 hours ago
Gamestop Share Volatility May Return With Russell Index Readjustment

Gamestop Share Volatility May Return With Russell Index Readjustment

The addition or deletion of stocks to stock market indexes can lead to havoc in the trading world. There is speculation about the GameStop s...
23 hours ago
Reduce, Reuse, Recycle: 5 Carbon Capture & Storage Startups Saving the World!

Reduce, Reuse, Recycle: 5 Carbon Capture & Storage Startups Saving the World!

From capturing and reducing carbon dioxide to creating negative emissions, we’ve found the five carbon capture and storage startups pu...
24 hours ago
Walmart poaches Goldman honchos to run financial arm Ribbit Capital

Walmart poaches Goldman honchos to run financial arm Ribbit Capital

Walmart Inc. has lured two Goldman Sachs top executives to run its fintech startup floated in conjunction with Ribbit Capital. Omer Ismail, ...
2 days ago
Employee engagement in the last leg of the pandemic and beyond

Employee engagement in the last leg of the pandemic and beyond

The pandemic has forcibly separated teams, resulting in many employees forced to work remotely which has led them to feel isolated and disco...
2 days ago
Texas Power Crisis led to over $1 billion loss for Vistra

Texas Power Crisis led to over $1 billion loss for Vistra

The winter storm that has devastated Texas, leading to power outages, water shortage, and heating troubles, will affect the electricity bill...
2 days ago