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Euro Vulnerability Due to Italian indebtedness


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I have now exited the equity markets completely. So I am holding my capital in USD, Euro, CHF and GBP. Each currency has its own problems but my main worry is how the Italian debt situation will eventually affect the Euro. Greece's problems with its debt and the resulting economic catastrophe is well documented. But Greece's total debt is minute compared to Italy's debt which is further compounded by the amount of bad debts held by the Italian banks (estimated to be over Euro 350 billion). With total debt amounting to around 130% of GDP, Italy can't sustain this position forever. According to one major study, the conclusion was that a country which had a debt in excess of 90% of GDP can't sustain its economy - if this is true, Italy is set for a major crash like Greece. As one of the largest debt issuers in the world, a default by Italy would have global ramifications. And particularly so in my view on the Euro. It could also have a knock on effect on Spain and Portugal.

 

So what is the probability that Italy, which is struggling with growth and public funding, will default on its sovereign debt? They definitely don't have the money to pump into the Italian banks. And what impact will this have on the Euro?

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