Italy’s family savings will keep the country from defaulting, Alessandro Capuano, head of Italian desk at IG Markets, told CNBC Tuesday.
“One of the good things about Italy is high savings by the family,” he said “The big savings of Italian families will at least fill the space of international investors in the short term.”
He believes that Tuesday’s key bond issue “will be absorbed from domestic savings” rather than international institutional investors. Italy’s benchmark FTSE MIB continued its fall with a 4 percent loss on Tuesday morning. Shares in major Italian bank Unicredit were suspended from trading as worries about Italy’s debt burden increased.
Italy needs a new government and new infrastructure, Capuano believes. “What’s really important for the market is to see more change and structural reform,” he added. Late last week, reports of a fallout between controversial Italian Prime Minister Silvio Berlusconi and his Finance Minister Giulio Tremonti helped spread market fears about Italy’s debt.
German Chancellor Angela Merkel said on Sunday: “Italy must itself send an important signal by agreeing on a budget that meets the need for frugality and consolidation. “I have full confidence that the Italian government will pass exactly this kind of budget” said Capuano.
On Tuesday the 10-year Italian bond yield broke through 6 percent for the first time since 1997, as worries about Italian sovereign debt grew.”There’s a huge part of the market, especially foreign institutional investors, which is thinking that Italy’s rating is not sustainable and will probably be cut between now and the end of the year,” said Capuano.
“We don’t even know what’s happening with US debt, so in this situation it’s natural you would cut your exposure to a country like Italy,” he admitted. Capuano believes that the Italian banks will have passed the European Banking Authority’s stress tests, the results of which are announced on Friday.
Worries about Greece were fanned by its deputy finance minister Pantelis Oikonomou, who predicted that his country will not manage to sell all the 50 billion euros ($71.52 billion) worth of assets slated for privatization in an EU/IMF bailout deal.
On Monday, euro zone finance ministers made more promises to help Greece and other EU debtors in a bid to stop contagion spreading to drag down Italy and Spain. They promised cheaper loans, longer maturities and a more flexible rescue fund for Greece, which is still at risk of default despite two hefty rescue packages from the IMF and ECB.
Euro zone policymakers would not rule out the possibility of a selective default by Greece, which the ECB is opposed to.
Greece’s Prime Minister George Papandreou wrote in a letter to the president of the euro group that markets increasingly doubt the euro zone’s ability to deal with the debt crisis.