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Goldman on Italy

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Goldman's Francesco Garzarelli weighs in on Italy.

We summarize:

  • Italy's debt-to-GDP ration hasn't moved much since the beginning of the crisis, so it's largely been ignored. But now people are focusing on the denominator, and wondering how the country can grow out of its 120% debt-to-GDP.
  • Burlesconi's popularity is decline, and thus he has scaled by wrenching decisions.
  • The real cause for the spike in yields is the greater Eurozone contagion problems.

As for what will end this: "What will get Italian and Spanish spreads back in check at this juncture can only be a convincing solution for Greece, which if successfully crafted and communicated could form the paradigm for the other ‘program’ countries. As said before, we are of the view that a full extension of additional funding to Greece (dropping PSI), or market-based solutions to buy legacy assets through the common funding vehicles, would be the best near-term solution. Beyond the near-term snap-back, a protracted compression in intra-EMU sovereign spreads awaits a greater involvement in the individual sovereign markets by non-EMU investors, particularly those in Asia. And that awaits greater clarity on the Eurozone’s governance fiscal structure."

This story originally appeared on Business Insider

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