Press comment: Italian policymakers must listen to the warning signals

Commenting on the news that Italy plans to increase public spending, Quilter Investors portfolio manager, Hinesh Patel says:

“European corporate bonds are in many cases currently offering a lower yield than Italian government debt. That means many large European companies are able to borrow at lower cost than the Italian government, which is a very clear sign that lenders view Italy as a bigger risk than private business.

“When the market believes your government is more likely to default on its debt that a private company, that should be setting off major alarm bells.

“Since joining the single currency, productivity growth in Italy has flatlined and the country has experienced one of the weakest recoveries in Europe following the financial crisis. At the moment most of Italy’s debt can still be financed internally. But it is highly doubtful that over the longer term Italy will see the kind of upturn in the economy required to grow its way out of the debt pile.

“Policymakers need to sit up and listen to the warnings signals all around them. Otherwise, the end result could become very ugly.”

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