Can the Eurozone survive the Italian credit downgrade?
Although I feel Janet Daley is over dramatic in her prediction of the end of the Eurozone, I feel she may have a point with her when she writes that the end really does seem nigh! With the rather sombre predictability of an episode of Eastenders, Italy has had its credit rating downgraded by Standard & Poor. Considering the rather uninspired austerity package cobbled together by the Italian government, it really doesn’t come as a shock, and personally I would have been surprised if they hadn’t done so. Nevertheless consumer groups Adusbef and Federconsumatori have retaliated by threatening to sue S&P. In fact, the reverberations of this move have been sharply felt all over Europe; not only have bond yields in Spain and Italy soared, but there are now worries over the future of the loans promised to Greece. If this is not finalised by the middle of next month, the Greek government have warned that there will be no money left in the till to pay public sector workers. It does seem like a pretty bleak outlook and more and more people are suggesting that it is evermore likely that Greece will default.
Conversely however, Bloomberg has reported that all the signs point to a fairly optimistic outlook for Germany in the third quarter, with most sources describing the economy as “robust”. While they freely admit that the long-term outcome is still uncertain, not least because of the precarious situation many of the peripheral Eurozone countries find themselves in, there does seem to be the faintest hint of a silver lining to this rather dark cloud. This is where I feel Daley (and she is no means on her own) is a little premature in her Eurosceptic doomsaying. Surely it stands to reason that if there is growth in Germany, then in an indirect way, that bodes well for other Eurozone countries, particularly the likes of Greece and Italy. German industrial production and private consumption of goods e.g.car sales, etc, started to rise again for the first time in months. With growth comes confidence in the financial sector and Germany is determined to ensure the survival of the Euro. Furthermore, if there is still grown in Germany then this of course means that not only will she be able to deliver on her promises for bailouts to various states, but also, should it continue there will still be money available if/when she is called upon for further bailouts (and lets face it, that’s pretty likely). It is only when Germany is in trouble that we really have to start worrying.