The Centre for Economics, Business Research and British think tank have reported that it is likely that Italy will default on its debts. The best and worst economic scenarios were replicated for both Italy and Spain.
The results showed a high chance of Italy defaulting on its debt, with only an unusual and improbable huge leap in economic growth being able to prevent it from doing so. Regardless of the fact that Italy has been cutting costs and running an extremely tight budget, the economy does not appear to be growing at an ideal rate. In the first quarter of 2011, growth was only 0.1% and there are no signs of an increase in rate. It was only Wednesday that the Prime Minister of Italy stated that the Italian economy was solid and the banks assets outweighed their liabilities. However, economists disagree and fear that Italy will lose their battle with the debt crisis.
On Thursday, the CEBR published a report which worked out that Italy’s debt repayments would be 150% of its annual output by 2017 compared to the 128% it stands at now, unless they have a huge economic boost.
In comparison, when the same extreme scenarios were modelled against Spain’s economy the results showed a high chance of Spain evading a default. This is due to the fact that Spain has no where near the amount of debt held by Italy. In the worst conditions, Spain’s debt repayments would still only reach a maximum of 75% of it’s annual output.
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