An Italian financial crisis is certain – the big question is how contagious it is

By | March 13, 2020

Larry Elliott writes:

The Italian government’s decision to suspend mortgage payments for its quarantined citizens is a drastic step in the battle to mitigate the impact of the coronavirus, but commensurate with the predicament the country finds itself in.

Italy is the eurozone’s weak link. Even before the current lockdown it was facing a fourth recession in little more than a decade and there has been only minimal growth in living standards in two decades. Its manufacturing sector is dominated by low-cost producers vulnerable to disruption in the global supply chain. Government debt is high, its banking system is weak and it is a strategically important economy, the eurozone’s third biggest.

Put simply, if there was one EU country that the European commission in Brussels and the European Central Bank in Frankfurt would have chosen to avoid a severe coronavirus outbreak it would have been Italy.

The issue is not whether Italy will have a recession. With schools, universities, theatres and cinemas shut and its hugely-important tourist industry facing a washout summer, the economy is going to shrink in both the first and second quarters of 2020. [Continue reading…]

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