Italy Could Trigger Market Contagion if High Debt Levels Rise

The contagion risks from a potential Italian implosion should concern market participants once again, according to analysts.

The euro zone’s third-largest economy is currently in the midst of an ongoing power struggle, with investors fearful the looming prospect of snap elections could be fought over the country’s role in the European Union and its membership of the single currency.

Rome’s deepening political crisis has prompted a second consecutive session of heavy selling in European financial markets Tuesday, with stocks tumbling and the euro slipping to fresh six-month lows.

“If you just look at the economic fundamentals of Italy, they are worrying,” Mouhammed Choukeir, chief investment officer at private bank Kleinwort Hambros, told CNBC’s “Squawk Box Europe” Tuesday.

“It is one of the biggest indebted countries in the world … it’s got an unemployment rate of 11 percent and its economy is still lower than where it was in 2007, whereas most major economies have recovered. So, clearly there is a requirement for structural reform here in order to regain confidence,” he said.

“(Last year) was a stellar year for economic growth in Europe, we’ve seen a resumption of inflation so those deflationary fears went away and it almost happened in a flash … Now everybody is concerned about potential for deflation and even potential for contagion,” he added.

vai CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza