Oct
25

Italian Intrigue

For the first time ever, EU bureaucrats rejected the budget of an EU nation, Italy. While markets suspect a Rome/Brussels compromise will be achieved with a lower deficit than the proposed 2.4%, the real problems are Italian banks. They hold substantial Italian government debt, and should fearful investors liquidate more Italian sovereign paper, bond values will fall, eroding bank capital, leading to reduced lending, higher rates, and even slower growth.

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