For about two years I have watched the performance of my (mostly American) stock portfolio gyrate, more or less in sync with the news about the PIIGS of Europe. The latest scary news has been all about Italy: rising bond yields implying an imminent inability to roll over their debt, leading to a possible default. What surprises me is that the gyrations have been similar in scale to what we saw recently when all the scary news was about Greece. It strikes me as odd since Italy's economy (and debt) is somewhere on the order of five times the size of Greece's. I guess you could say the market has been taking the Italian news in stride, or perhaps that the market always knew that the Italian bad news was somehow "baked into" the Greek bad news. Interesting though, that you don't hear much about Spain anymore. Unemployment there is abysmal, but they seem to be making serious efforts to shore up their banking system, and of course their debt is only around 60% of GDP, as opposed to Italy's 120%. (see my article and chart:
What is Going On in the Eurozone?)
Meanwhile, browsing through Nobel laureate Paul Krugman's
economics blog, I was pointed to
this very interesting piece written in 2006 by Nouriel Roubini. Please read it. At an economic conference at Davos in 2006, Italian finance minister Giulio Tremonti tried to shout down Roubini when he gave an accurate and prescient analysis of the challenges which would be facing Italy if they did not make serious reforms to their economies; basically he compared Italy to Argentina, and said they were going down the same road.
Of course Roubini turns out to be right, and the entire Berlusconi administration comes out looking like ineffective, corrupt children, who had been placed in charge of a $2 trillion economy. Nice work, guys.
1 comment:
Post a Comment