Worries in Euro Zone Shift to Italy From Spain

Well, I'm not surprised at all.

At the New York Times, "Worry for Italy Quickly Replaces Relief for Spain":

VENICE — Concerns grew on Monday that Italy could be the next victim of Europe’s financial infection, leading nervous investors to sell Italian stocks and bonds and damping euphoria over a weekend deal to bail out Spain’s banks.

Italian officials privately expressed concern that the 100 billion euros, or $125 billion, that Europe pledged to Spanish banks might not stop the troubles from spreading.

Italy’s main stock index was Europe’s worst performer on Monday, a day when United States stocks were also dragged down and investors flocked yet again to the safe harbor of American and German government bonds. Even the Italian prime minister, Mario Monti, a European technocrat who came to office after the euro crisis forced out Silvio Berlusconi last November, has begun to acknowledge the dangers posed to his country’s 1.56-trillion-euro economy ($1.95 trillion).

The main fear is that Italy cannot grow its way out of a recession fast enough to pay a mountainous national debt. Other concerns include the fact that Italy, with the third-largest euro zone economy after those of Germany and France, will have to shoulder a large portion of the bailout bill even as it grapples with its own sharp economic downturn.

Because Italy does not have enough economic growth to generate the money itself, the government will probably have to borrow it at high interest rates, adding to an already heavy debt load.

“There is a permanent risk of contagion,” Mr. Monti told an economics conference near Venice over the weekend, speaking by telephone. “That is why strengthening the euro zone is of collective interest.”

Prices of Italy’s government bonds reached their lowest level in months. Investors apparently found little assurance that the euro currency union was any closer to solving its underlying problems — not with parliamentary elections in Greece this weekend that could determine whether the currency union is strong enough to retain its weakest members.

Investor euphoria in Europe over the Spanish bailout deal Monday morning was short-lived, giving way to an essentially flat day on many European stock markets. But Italy’s benchmark index was the Continent’s worst performer, ending down 2.8 percent.

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