Wednesday, November 5, 2008

Is Italy in Trouble?

There are more credit default swaps bet against Italy than any country in the world, except Turkey.

Bloomberg writes:

Spain and Italy are among the European countries worst hit, with government data showing both nations are in the grip of a recession.

"There have been big changes in the credit quality of Spain and Italy, and buying credit-default swaps is a safe-haven bet in a crisis,'' said Philip Gisdakis, a Munich-based credit analyst at UniCredit SpA.

We all knew that Spain was in trouble, due to its crashing real estate market. And I knew that numerous emerging economies were in trouble.

But I didn't know Italy was in so much trouble.

Paul Kedrosky reviews these numbers and writes:

"Apparently the future of the financial world hinges on Italy and Spain not defaulting. Who knew?"

What's up with Italy?

Well, for one thing, its GDP is contracting.

And the Financial Times reported in March that Italy is facing difficulty rolling over €50bn in debt expiring in May, as market conditions have deteriorated.

And if you need a visual to see just how hard hit numerous nations have been hit with widening CDS spreads in the last month, look at this.

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3 comments:

  1. Daniel FNovember 5, 2008 at 9:11 PM

    The thing about GDP versus GNP is that you add Exports and subtract imports to get to GDP. This means that if we in the USA are living high life by papering the world with worthless Federal Reserve Notes and and still have a flat GDP.

    It now takes 5 trillion dollars in new debt to create one trillion dollars in additional GDP.

    In 1968 it took one billion dollars in new debt to create one billion dollars in new GDP.

    I think the dollar will crash next year. Does anyone agree with me about the timing?

    ReplyDelete
  2. UnknownNovember 6, 2008 at 10:02 AM

    Isn't it 0.30% in the table from the link you posted?

    I'm a reader from Italy: our economy is in deep trouble, some of the bigger banks (e.g. unicredit) are techincally bankrupt, we know, but a 30% contraction is too much, I think!

    Anyway, yesterday we translated and posted your article (with proper links of course) in the italian site www.comedonchisciotte.org:

    http://www.comedonchisciotte.org/site/modules.php?name=News&file=article&sid=5212&mode=&order=0&thold=0

    Thank you for all the intersting articles you write

    Alcenero

    ReplyDelete
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