Stability of the Euro Threatened by the Italian Debt

ArticleDebt crisis June 20, 2018 - 4:51:04 AM

India and Russia bypass US sanctions ; Euro stability threatened by Italian Debt ; Iran wants to Veto Saudi and Russian Oil Production Proposal

Euro is Threatened by Italian Debt

Italy is a founding member of the European Union and the euro area. But during years of economic stagnation and lack of reforms, public debt reached 132% of GDP, the second worst ratio in the region after Greece.

The two major populist parties, the Five Star Movement and the Extreme Right League, have emerged from the crisis to form an administration. Investors are now fully aware of the political risks.

Tax cuts of 15% to 20% and lowering the retirement age will further undermine Italy's public finances.

These measures, if implemented, will put the government in a bad position vis-à-vis those responsible for the EU budget. Italy's debt mountain exceeds 2,000 billion euros, leaving the country with less of power.

The rating agency Moody's has recently warned that it could reduce Italy's credit rating, as political decisions by the new Italian government may weaken its fiscal position and block efforts to reform the economy.

A downgrade for Italy would make servicing its debt more costly and increase the cost of new borrowing, according to CNN

The Italian economy is big enough to disrupt the whole euro zone. The country represents about 15% of the GDP of the euro zone and 23% of the public debt.

India and Russia bypass American Sanctions.

The Russian and Indian Governments seek to avoid American sanctions by replacing the dollar by the rupee and ruble in their trade, according to RT.

US sanctions are blocking agreements worth an estimated $2 billion between the two countries, particularly in the armaments sector.

Today, the total trade agreements between the two countries are estimated at 12 billion dollars. India is ready to purchase Russia's S400 air defense system under a $5 billion contract. However, the sale is strongly opposed by the United States, which is also trying to put an end to a similar agreement between Russia and Turkey.

Iran wants to use his Veto against Saudi and Russian

The next OPEC+ meeting in Vienna could end badly. OPEC's representative in Iran said the country will veto any proposal to increase production, with the support of Venezuela and Iraq.

Saudi Arabia and Russia will propose an increase in production from 1 July, ranging from 500,000 barrels per day (bpd) to 1.5 million barrels per day. However, "OPEC's three founders will stop it," said Hossein Kazempour Ardebili in Bloomberg, adding that "If Saudi Arabia and Russia want to increase production, that requires unanimity. If they ever acted alone, it would be a violation of the cooperation agreement. "»

Saudi Arabia and Russia are largely able of producing more because they already produce below their capacity. However, Venezuela is already in difficulty with an inexorable decline in its oil production.

The three OPEC members are clearly at a disadvantage compared to those who are already able to rapidly increase their production levels. Since any OPEC decision must be unanimous, the chances of the proposal being validated are slim.


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