UK, Italy, and China are three big economic powder kegs – AEI – American Enterprise Institute: Freedom, Opportunity, Enterprise21st November 2018
It is all too common for the global economy to be confronted with a variety of risks. However, as we approach 2019, there would seem to be two qualitative and disturbing differences in the risks now besetting the global economic recovery.
The first is that there is a higher-than-usual chance that at least some of these risks might materialize. The second is that if any of these risks do materialize, they will do more than the normal degree of harm that such risks generally do.
Among those risks that have a high chance of materializing next year and that could cause serious global economic damage is an intensification of the Italian sovereign debt crisis.
This has to be of concern for both the European and global economies considering that Italy is the eurozone’s third-largest economy and is approximately 10-times the size of the Greek economy.
It is also of concern considering that the Italian government debt market is the world’s third-largest sovereign debt market and that a considerable proportion of the $2.5 trillion of that debt is held by Italian and other European banks.
Another reason for fearing that an Italian debt crisis might have spillover effects to the rest of the global economy and its financial system is that, unlike was the case in the earlier Greek crisis, Italy might prove very difficult for its European partners to save.