Mere days after Spain received a bailout deal, wary investors and some eurozone officials turned their attention to Italy, proving that contagion fears are far from soothed. Others were more sanguine about the situation, or perhaps had more faith, as Fitch Ratings said it was unlikely that Italy would need its own rescue.
Italy’s industry minister has said that the Italian government had put in place reforms that had bolstered the country’s economy and that Rome had no need to look for outside assistance. But Finance Minister Maria Fekter of Austria on Monday said that was not the case, Reuters reported.
The minister said that Italy could be the next in line for a bailout. “Italy has to work its way out of its economic dilemma of very high deficits and debt, but of course it may be that—given the high rates Italy pays to refinance on markets—they too will need support,” Fekter said in a television interview quoted by Reuters. On Tuesday, Fekter backtracked to say that she had no indication that Italy was considering any such action.
Fekter is not the only eurozone official to see problems on the horizon for Italy. Lars Feld, who sits on the German government’s council of economic advisors, was quoted saying, “Overcoming the troubles in Spain will bring calm to the markets for a while, but the chances are not so small that Italy may also come under fire, in particular as the promised labor market reform has turned out to be less ambitious.”
And it isn’t just eurozone officials who fear potential fiscal woes for Italy. Observing the increase in Italian bond yields, Brenda Kelly, senior market strategist at CMC Markets in London, was quoted saying, “We’re looking at a major problem possibly for Italy, with its bond yields climbing above 6% for the first time in quite a long period of time.”
She added, “It being the third largest economy [in Europe], it does actually set the scene that the contagion effect can’t necessarily be contained to Spain.”