On Wednesday, Italian Prime Minister Silvio Berlusconi addressed his nation’s parliament in a speech designed to calm fears over the Italian economy.
Reuters reports that Berlusconi refused to resign, promising to finish out his term and bring economic growth to Italy. In recent weeks, calls for Berlusconi’s resignation have intensified as economic conditions in the Mediterranean nation continue to deteriorate.
Last weekend, thousands of women demonstrated against Berlusconi because of his alleged involvement in a sex scandal, although concerns over Berlusconi’s involvement are likely to come second to Italy’s ongoing economic troubles.
In recent days, shares of Italian financials have come under fire, as traders may be betting that the nation’s debt concerns are likely to worsen. The cost to insure Italian 5-year bonds has more than doubled since June.
Are there real concerns in Italy, or is the recent action merely speculation due to deteriorating conditions in other troubled European states like Portugal, Greece, and Ireland?
According to Berlusconi, it is the latter, but even more severe.
Berlusconi stated that Italy’s problems were not local, but “planetary,” alleging that a lack of confidence in the global markets was manifesting itself in the recent concerns over Italy’s economy.
Berlusconi blamed the problems in the U.S. and Japan for the trouble in Italy, stating that Italy’s sovereign debt was being “incorrectly” assessed by the market, and that Italy’s financials were “solid,” Dow Jones reports.
Yet, is Berlusconi merely spewing propaganda?
Last month’s European stress test demonstrated that the majority of Europe’s banks were well capitalized. Still, markets barely reacted; perhaps expressing a belief that positive commentary on the part of European officials was based more in hope than in reality.
Italy is the third most indebted nation in the world, next to only the United States and Japan. However, Italy is not the financial center of the world like the United States, nor does it have a history of economic resiliency as noted as Japan.
Italy is not even the largest economy within its own geographical region, and with its aging population, prospects for the future may appear grim.
If Italy experiences a banking crisis, it could be bearish for the euro. The euro appreciated against the Swiss franc on Wednesday, but the move may have been due more to intervention by the Bank of Switzerland, rather than Berlusconi’s statements, as the euro erased nearly half its gains following Berlusconi’s speech.
If Berlusconi is to be believed, certain investors could see it as an opportune time to consider positions in Italian financials and debt. However, at the moment such a move would be pretty contrarian, as the broader market seems to doubt Italy rather strongly.
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