At the first “defection” from the euro zone by one of its largest economies, a wave of defaults risks crashing over the Eurozone. These are the catastrophic forecasts highlighted in the latest newsletter from Eurointelligence. According to the analysts of the American economics website, “the only way to avoid such a situation is for the ECB to start printing money to cover the losses”.
A sign that the risk of default is growing, with the presidential elections in France approaching and the possibility of an early vote in Italy, comes from Target2, the payment system between the economies and central banks of the Eurozone. As Eurointelligence points out, “month after month Germany’s Target 2 surplus is rising, and in mid-February it reached a record of 814 billion euros, up 20 billion from the previous month”.
These are debts that will have to be repaid by the national central bank should a member state leave the bloc (whether Frexit, Grexit or Italexit). This trend, the experts stress, “suggests that on the other side there will be some country in which the deficit is increasing. This is the case, for example, of Spain and Italy, which in January saw their red ink rise to 350 and 364 billion euros respectively“. The update of these figures heightens fears about the resilience of the deficit countries.
Take the case of Italy, whose debt exposures towards the rest of the area rose by almost 30 billion in the first two months of 2017 (+29.5 billion), reaching a record figure of 386.1 billion. The acceleration of capital outflows from Italy is an alarming signal, because it signals the progressive loss of market confidence in our economy, with a growing perception of default risk.
Since the middle of last year, the debit position of the Bank of Italy towards the ECB has worsened by almost 100 billion and, not by chance, over the same period the yields on BTPs have soared. Ten-year government bonds have gone from 1.34% at the end of June 2016 to 2.25% at present, and the Spread between BTPs and Bunds has widened.
What would happen – the experts ask – if any of the deficit governments were unable to settle their debts, especially in the event of an exit from the euro. Such a situation would cause financial stress and political conflict on both sides such that the debit positions could hardly be put right. That is why an exit from the euro is the antechamber to a series of massive defaults, which would be unprecedented in economic history.
Source
http://www.wallstreetitalia.com/italexit-ondata-di-default-rischia-di-travolgere-area-euro/
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