Italy hit by crisis

"Landep News"

Italy hit by crisis

The European Union is now going back to previous plans meant to help Greece keep its debt under control. By doing so, Europe’s finance chiefs are feeding their dispute with the central bankers, but the upcoming Italian crisis is leaving them no other choice.

As bonds create problems in Italy and Spain and undermine the stability of the euro-zone, the European Union is reconsidering on of the solutions proposed by Germany earlier this year: to buy back discounted debt. The officials aren’t ruling out the idea of applying other solutions that would mean temporary default for Greece either, but in the same time they are seeking the support of the European Central Bank in order to avoid such a situation.

Despite all its efforts, Brussels has been unable until now to keep under control the fluctuation of European shares and bonds belonging to countries overwhelmed by debts. Investor concerns continue to rise as the euro reaches the lowest level recorded in the last four months. In the same time, Italy is forced to face a bond yields that has exceeded 6 percent (reaching the highest level since 1997) while Milan’s stock index has been affected by a decline that has resulted in its lowest value recorded in the past two years.

Yesterday, the reunion that lasted 9 hours resulted in a pledge of the 17 euro countries that are determined to find the right solution that will end the crisis that has been affecting Europe for 21 months. Today, another meeting is scheduled, because the 27 EU finance ministers need to think about the response they will give when the results of the bank stress tests will be made public. The reveal will most likely take place by the end of the week.

The main reason why Italian assets were upended is related to the Prime Minister Silvio Berlusconi. That’s because many wonder if he will be able to apply its plan to reduce the deficit by 40 billion euros.

The bond issues have also spread to Spain, the fourth-largest user of the European Union’s currency. The 10-year yields of Spain have increased to 6.26 percent (another euro-era record).

Although the situation seems to be extremely complicated, Olli Rehn, the Monetary Affairs Commissioner said that “there are a variety of ways of enhancing the flexibility”. In his opinion, buybacks are just an option: “I would at this stage not exclude any option. But instead we are exploring these possibilities”. These days, a little optimism goes a long way.

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