News from The Spectrum IFA group ITALY 18 Nov 11

This week has seen some positive, or more stable moves, in respect of Italy, Greece, Spain and the political games which have been surrounding these countries and the state of their finances.

From my discussions with clients and others at the moment, this is the hot topic so without further ado I am going to relay some information to you all from a teleconference which I attended with a top economist at JPMorgan in London on Friday morning last week.

The general feeling from the frontline is that their is unlikely to be any imminent breakup of the Euro despite what you may read in the headline grabbing newspapers. However, you can be assured that you will probably continue to see volatility in the markets for some time to come until the markets are happy with the economic reforms which are being put in place in Italy, Spain and Greece.

If we take Italy and Spain specifically it would seem that the recent Bond market activity, which pushed Italy's yield to over 7%, is actually unjustified and is more of the Bond market demanding change at a political level (i.e the resignation of Berlusconi) and urgent reform which is desperately needed. The facts are that both Italy and Spain are NOT insolvent. Italy in particular is actually quite a healthy economy.

If you take the Gross Domestic Product of Italy before it has to make interest payments on its Government debt and it actually runs a primary budget surplus. This is NOT the case with Ireland and Greece.

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