British consulting firm, the Centre for Economics and Business Research, has released a report finding it unlikely that Italy will be able to avoid defaulting on its debt. In the same report however, the CEBR noted that Spain may yet find a way to avert a similar fate.<\/p>\n
According to the CEBR report, the difference between the two situations is the fact that Spain\u2019s debt is much lower than Italy\u2019s. Even in a \u201cworst-case scenario\u201d Spain\u2019s debt ratio should not exceed 75 percent of GDP over the next decade \u2013 Italy on the other hand is already near 130 percent of GDP.<\/p>\n
Worse still, the CEBR projects that if yields remain above the 6 percent now required to attract investors to the country\u2019s bonds, the country\u2019s debt ratio will exceed 150 percent of GDP by 2017.<\/p>\n
At last Thursday\u2019s bond auction, Italy successfully sold 2.7 billion euros (US$3.8 billion) worth of 10-year bonds. The rate to entice investors, however, rose to an eleven year high of 5.77 percent. This is a significant increase over the June 28th<\/sup> auction where 10-year securities sold at 4.94 percent. This also represents a risk premium of 252 basis points when compared to the benchmark German bunds currently priced at 3.25 percent.<\/p>\n The CEBR gives Italy an outside chance of avoiding a default but only if the economy manages a significant growth increase. The chances of this appear slim indeed when considering the latest figures. For the first three months of 2011, the economy expanded by a miniscule 0.1 percent and indications are the second quarter will return a similar result once the tally is complete.<\/p>\n Scott Boyd<\/a> is a currency analyst and a regular contributor to the OANDA MarketPulse FX blog<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" British consulting firm, the Centre for Economics and Business Research, has released a report finding it unlikely that Italy will be able to avoid defaulting on its debt. In the same report however, the CEBR noted that Spain may yet find a way to avert a similar fate. According to the CEBR report, the difference … <\/p>\n