Italy 'close to end game', says economist Roger Bootle
Mario Monti is starting work to form a new government to lead Italy out of its acute debt crisis.
But interest rates on Italian debt in the past weeks have been trading in the same way that rates on Greek and Irish debt were trading before those countries were forced to seek a financial rescue - so is a bailout for Italy inevitable?
For BBC World Service's World Business Report, Manuela Saragosa asked the respected economist Roger Bootle whether Italy would have to be rescued, or whether it was even possible to bail out Italy:
Full transcript below:
Roger Bootle: There could potentially be an enlarged fund to bail Italy out, but it would have to be substantially enlarged from what's been on offer so far. Of course we haven't heard any details about the expansion of EFSF supposedly.
Manuela Saragosa: That's the Financial Stability Facility, the bailout fund.
Roger Bootle: Exactly. That was agreed at the recent summit, but we have had no flesh put on those bones at all. It is possible for the ECB to step up purchases of Italian bonds in the market.
It has already got apparently about €100bn (£85bn) worth, but we all know what the problems to that are.
There is the limited resources of the ECB, there are the legal restrictions in Germany. There is the interpretation of what the ECB itself is legally allowed to do. So, in practice, I think we are coming to a very difficult point.
Manuela Saragosa: If Italy does need a rescue package, where is all that money going to come from because we are talking trillions really, aren't we?
Roger Bootle: Well, it could come from all sorts of places and I think that if there were a rescue package put together with a credible austerity plan, then you could imagine market confidence reviving the bond yields falling and effectively the private sector putting up the money to fund the Italian deficit and refinancing burden.
Manuela Saragosa: But that's what was supposed to have happened in Greece and that has happened in Greece. I mean why should it happen to Italy when it hasn't even - they haven't even been able to get it together for Greece?
Roger Bootle: I don't think it is going to happen. I am the arch eurosceptic. I have been the one who have been saying for ever this thing is going to fold and I have been saying right from the beginning that I thought Italy was the most vulnerable country.
It's not a technical problem as it's possible technically to solve Italy's problem. The question is political will and the distribution of pain and benefit. Can you imagine a deal that's going to enable other European countries to put forward the money, to put that at risk to bail Italy out of its difficulties? I find that very difficult to imagine.
Manuela Saragosa: Okay. So should Italy leave the euro then?
Roger Bootle: I think that there is a pretty high possibility now that Italy will end up leaving the euro, but it's not going to happen immediately. We are going to see I'm sure a repeat of what we have seen over recent months and years, that's to say more fudge and mudge.
There will be some other summit, there will be some attempt at a deal, something will be put forward as a solution and will turn out not to be, maybe outside the euro group there will be more non-euro zone money available; something from the IMF perhaps.
I suspect this will run and really Italy won't default immediately or leave the euro. This is going to last weeks or months, but I suspect we are coming very close to the end game.
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14 Nov 2011
- From the section Business