Italy is next in line to seek a bailout from the European Union and the International Monetary Fund as a 'slow-motion banking crisis' unfolds in the country, Felix Zulauf, President of Zulauf Asset Management said.
"Everyone is focused onSpain. I think the next country to go is Italy," Zulauf told delegates at a conference in Edinburgh.
"What I notice is a tremendous deposit outflow. It's a slow-motion banking crisis, and the banking system has been the big buyer of government bonds in Italy," Zulauf said.
"They (the banks) have been buying between 60 and 90 percent of the bonds issued in recent years. And the way the balance sheet is developing in the Italian banking system, they won't be able to do that, and I wonder who will buy those bonds," he added.
This would in turn then create upward pressure on Italian bond yields and could send Italy into a new recession, according to Zulauf.
Another recession in Europe as a whole is also a very likely prospect, Zulauf said.
"The EU is trying to dictate a very severe austerity program…and that will lead to a lengthy recession, I would call it a depression, and we will see later this year that Italy, Spain and virtually all the peripheral countries will be in negative growth again," he said.
"I think there is a 90 percent likelihood of another recession in Europe (beginning) later this year," Zulauf said.