The Next Domino? Italy Suffers from Euro-Zone Contagion Fears

After Greece and Portugal, the markets are sending signals of turning on Italy, and investor fears are raising rates on the nation’s government bonds. Analysts have issued warnings about the country’s aging population, weak economic growth, low productivity and rigid labor market, reports Carsten Volkery for Spiegel Online. Should Italy fall into the vicious circle of downgrades and rising bond yields, the consequences would be disastrous for the euro zone,” Volkery writes. “A new banking crisis would be likely.” The Italian finance minister has proposed austerity measures to balance the budget by 2014 and reduce debt, and rejection of those could unnerve foreign investors. Italy’s economic woes are not nearly as threatening as Greece’s, and Volkery points to the diverse economy, high savings rate and a liquid bond market. However, Germany’s exposure to Italian bonds is seven times that of its Greek holdings. – Yale Global