France and Italy were named and shamed as in need of “significant” reform by a senior Barclays analyst on Thursday, despite having largely escaped market scrutiny.
“I think there are two weak links in Europe, at different points of that weakness. I think France and Italy both need to see significant structural reform,” Jim McCormick, head of asset allocation research, told CNBC.
He added that markets had failed to pressure the two countries into making necessary improvements. “These are very large countries—they are much bigger than Greece, Portugal and Spain—so there is still a big problem out there that you need structural reform in two very large economies in the euro zone.”
The French economy was worth around 2.06 trillion euros ($2.81 trillion) in 2013, or around one-fifth of the overall euro zone economy of 9.60 trillion euros.
Italy’s economy stood at 1.56 trillion euros, constituting 16 percent of the euro zone economy.
Following the publication of Barclays’ quarterly global outlook report, McCormick advised investors to shift towards a more defensive portfolio, since fixed income and equity returns were likely to be weaker in the second half of the year.
In particular, he flagged that Barclays had exited its long-standing overweight in European peripheral bonds and re-entered an underweight on euro foreign exchange allocation.