August 1, 2021

Risk of contagion for Spain?

Risk of contagion for Spain?


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The Italian state budgets for 2019, approved this Thursday, and that foresee a deficit of 2.4% which is three times more than expected by the previous government of Paolo Gentiloni, together with the rumors of resignation of the Italian Economy Minister Giovanni Tria and the statements of the President of the European Commission – Jean Claude Juncker – assuring that in this way «Italy distances itself from budgetary targets» they continue to punish this southern European country in the stock markets. In particular, the Italian risk premium – which measures the differential between the interests of the German debt and that of the southern European country – has now reached 300 basis points at first hour of the morning. So far this day, the Italian premium is already the highest of the great European countries only behind Greece that hovered around 11 in the morning 388.1 points. Spainto, on the other hand, had a premium of 113.5 basis points rising slightly.

What has also been infected to the main European parks: Milan fell around 11:30 in the morning more than 1% by 1.16% in Madrid, 0.93% in Frankfurt, 1.18% in Paris or 1.18% in Eurostoxx 50 index.

In opinion by Salvador Jiménez, market analyst AFI (Independent Financial Analysts), after the statements during the summer that the EU fiscal rules were to be respected by the Italian Economy Tria or Salvini, in the end they have not materialized and «the first draft of the Budget speaks of a deficit of 2.4% for this year and until 2021, with a debt on the GDP of 132.5% »the markets have not received these accounts well« although there may be some overreaction ». In this line, he recalled that the final stability plan and budgets will not have to be sent to Brussels until October 15.

Since Renta 4 have been recalled that although the debt differential between Germany and Italy has been around the 300 basis points – maximum of 4 years – in the case of Spain it would have barely increased its risk premium by 11 basis points from the end of last Thursday by 60 points of the Italian. "We are seeing ourselves more affected by the contagion effect in the financial sector, more sensitive to how the debt market behaves". In this line, he recalled the holding of Italian debt by some Spanish financial institutions: "This has a negative impact on the balance sheet", have warned from this investment bank.

In this sense, they have qualified "paradoxical" that Spanish banks be penalized, the greater volume of which has been invested in Spanish debt. In the opinion of analysts of Renta 4, "the market is not discriminating" in this aspect and the weight of banking in the Ibex 35 would explain the falls of the last days. "If the political situations of Italy and Spain were comparable, our cousin would rebound," they objected.

About a possible "contagion" to Spain, Jiménez (AFI), has pointed out that «They are completely different situations»and that now, unlike in 2012, the markets do "discriminate" between both countries. As an example, you mentioned, the purchase flows or that Asian investors bet on the Spanish debt. "The key here is the rating, which has already been raised by two rating agencies against a country like Italy with a debt valued at triple BBB + and threatened to fall into a negative perspective, closer to the junk bond, "said this expert.

However, he has admitted that «Spanish banks have enough positions in Italian debt» but discards that this causes a contagion to other sectors. In this sense, he has referred to the particular coalition of government between the Salvini Northern League and the 5 Star Movement of Luigi Di Maio with important measures in immigration policy. Matter that his partner would like to see displaced by others of more economic cut included in the coalition agreement.

Since AFi have aimed at a tug-of-war between Brussels and Rome, which would lead to an intermediate agreement on the deficit. «An understanding will be reached, in which neither win neither, "added Jimenez who acknowledges the difficulty of justifying the reduction of debt via GDP growth.


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