Italy in focus amid fears of contagion

By Louise Armitstead
8:12PM BST 10 Jun 2012

http://www.telegraph.co.uk/finance/financialcrisis/9323070/Italy-in-focus-amid-fears-of-contagion.html

Economists and analysts warned that Italy could face a turbulent few days amid concerns about contagion from Spain.

Daniel Gros, head of the Centre for European Policy Studies in Brussels, said: “After Spain, there will not be the margins to help Italy. It will be defenceless and forced to help itself if the situation deteriorates.”

The Italian business newspaper Il Sole 24 Ore said the €100bn (£80bn) deal to prop up Spain’s banks “represents the removal of the filter that separates our country from the group of other countries in difficulty”.

Another paper, Corriere della Sera, said: “Italy is now the only country in difficulty that has not had to ask for a bail-out.”

Compared to Spain, Italy’s banks are stronger and its borrowing lower. But last week Moody’s said Spain’s banking troubles could be “a major source of contagion” for Italy. The rating agency downgraded 26 Italian banks last month, including UniCredit and Intesa Sanpaolo.

The Spanish rescue was designed to calm markets ahead of the crucial elections in Greece next Sunday. However, this weekend the anti-austerity leftist party, Syriza, was main­taining its lead in the polls. Evangelos Venizelos, head of the mainstream Pasok party, today said that he had written to the other political leaders warning them of a “bogus impasse” that threatens to return another hung parliament.

He appealed for agreement to form a broad coalition to avoid a “new, traumatic experience” for Greece next week.

Meanwhile, trader focus is also likely to remain on Cyprus after its government last week admitted there was a “serious possibility” it would need help from Brussels. The island nation, with a population of 1m, is thought to need an immediate cash injection of €1.8bn.