Covid-19 and the world economy, part 4: Italy / South Africa. Academy of Ideas online event on 1 July 2020, 20.00-21.30 CEST, with my introduction on Italy

You can register for this event and participate on Zoom using the following link:

Covid-19 and the world economy, part 4: Italy / South Africa

The event if free but you are encouraged to make a contribution to the Academy of Ideas for your participation here:

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This is the outline of the event:

While there has been much focus on the major economies in relation to the coronavirus pandemic, the economic fallout is an opportunity to look at two economies that are important in different ways. Italy, heavily indebted and with two decades of sluggish growth, has often been regarded as the biggest threat to the euro. South Africa, once regarded as one of a batch of up-and-coming economies – the so-called ‘BRICS’ with Brazil, Russia, India and China – seems stuck. In both cases, a depression could be disastrous.

In this session, Dominic Standish (Italy) and Russell Grinker (South Africa) will describe events in the countries where they live and offer their thoughts on what the future holds.

Here are some of my comments on Italy I aim to develop during my introduction and the discussion:

Can the EU prevent Italy’s public debt problem precipitating a Eurozone crisis?

Italy’s debt problem could lead it to default, face restructuring or leave the EU. I set out these scenarios at the end of April in this article:

The Italian crisis is only just beginning

Then, at the end of May, the European Commission proposed a €750 BN coronavirus recovery fund:

Ursula von der Leyen’s big gamble with borrowed money

While Italy would receive most money through this fund, this would be more loans than grants adding to its public debt. Although France, Germany and the ‘frugal four’ states of Austria, Sweden, the Netherlands and Denmark would receive much less from this fund, they only get grants not loans. If this fund is agreed by EU member states, it is likely to come in 2021, too late to help 51.5 per cent of Italian companies that foresee a lack of liquidity for expenditure until the end of 2020:

38% of firms see survival at risk -ISTAT

This will also be too late to deal with Italy’s public debt, which rose €36 BN in April to €2,467 BN. As I argued in my April article, the European Central Bank is the key institution dealing with Italian debt in the short-term. The ECB broke its own rules to buy €51.1 BN worth of Italian government bonds in April and May, which was all of the new Italian debt issued, while under-buying German and French debt:

ECB scoops up all of Italy’s new debt just to keep spread stable

ECB debt purchases under its coronavirus Pandemic Emergency Purchase Programme are likely to be extended in September. But will these postpone the crisis?

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