Eq: Dev ex-US


While all eyes are on Italy and its political/markets crisis, the answer to the really scary question—will the Eurozone and EU fall apart—might lay in Spain. Italy is going to go down the road it chooses, but the big consternation is really about whether others will follow. To see the extent of the crisis, one needs to follow Spain, which will be holding a no confidence vote for its PM on Friday, with socialists likely to take over in his party’s absence.

FINSUM: If Italy falls, the next domino seems likely to be Spain. If the pair indicate they are leaving the Euro we will probably have a financial crisis unfold.


For those who consider themselves students of the market, yesterday was a real whopper. Short-term bond yields can usually be seen as a proxy for cash. But in a truly astonishing move, Italian two-year yields rose an amazing 1.5 percentage points yesterday (150 bp) to 2.4%. By comparison, other southern European yields, such as Spain, moved just 12 bp. Markets are worried about a massive Italian default, and possibly the redenomination of bonds into Lira.

FINSUM: When you get right down to it the panic here is not just about a default, but about a breakup of the Euro. We have always said it would be Italy to leave first, and the major question is whether others would join them when that happened.


This is Europe week for financial markets. Italy is currently engulfed in a political, and increasingly markets, crisis. Now the panic and political gloom is spreading to Spain. The country’s Prime Minister, Mariano Rajoy, is set to face a no confidence vote and the outcome is very uncertain. Accordingly, Spain’s sovereign yields have been rising alongside Italy’s. The no confidence vote will be held on Friday and comes following a ruling of corruption against the center-right party of which Rajoy is leader.

FINSUM: Southern Europe is back in the news this week after a six-year hiatus. We don’t think anything major will be caused by Spain, but the Italian situation is very dicey.

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