Wednesday, July 13, 2011

Goldman Sachs O'Neill: Eurozone Will Not Absorb Italy's Crisis

The problems of the eurozone are growing and the region can not afford to absorb a broad impact of a crisis in the bond market in Italy, said Jim O'Neill, chairman of Goldman Sachs Asset Management, a report this  weekend. O'Neill coined the acronym BRIC (Brazil, Russia, India and China).

Concerns with the results of stress tests of European banks to be released next Friday and doubts about the cohesion of Italian fiscal tightening measures are putting Italy under the spotlight, said O'Neill.
Bonds in Italy have retreated sharply in recent sessions because of concerns about the health of the banking system and the intensification of public friction between the prime minister, Silvio Berlusconi and Finance Minister Giulio Tremonti.

Investors may be selling Italy to hedge its exposure to other countries in the euro zone, said O'Neill. But he added that if it continues, this sale will put the crisis in the region at a more problematic level .

"I found it fairly easy to not get too concerned with the dynamics of the debt of Ireland, Portugal or Greece, but Italy is a different topic," O'Neill wrote, citing the size of the Italian economy.

At 120% of Gross Domestic Product (GDP), Italy's debt already amounts to about 25% of GDP in the euro zone, he said. "Neither the euro zone, or possibly the rest of the world can afford a full-scale crisis in the Italian bond market,"

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