While financial markets remain focused on the sovereign debt issues in Greece, as well as escalating concerns in Portugal, Italy may be the next member of the PIIGS nations to be at the forefront of the crisis.
Simon Johnson – former chief economist at the International Monetary Fund (IMF) and a current professor at the Massachusetts Institute of Technology (MIT) – provided a stern warning over the financial prospects for Italy in a Bloomberg column.
“With a precarious fiscal picture, it could be the next to come under pressure,” Johnson wrote. ”In the most recent International Monetary Fund projections, Italy’s headline debt will reach 120 percent of national output this year, and then decline only slightly to 118 percent by the end of 2016.”
In contrast to Greece – whose economy is much smaller – Italy has nearly 2 trillion euros in debt outstanding. Dr. Johnson contended that “It’s inconceivable that Germany or the IMF could provide a rescue to protect its creditors. Such a package would have to involve loans and guarantees of at least 500 billion, and possibly 1 trillion, euros to impress the markets. This would be a significant fraction of Germany’s gross domestic product of about 2.5 trillion euros. With a debt-to-GDP ratio of about 80 percent, Germany’s ability to take on new debt is limited.”
“It all adds up to one sobering fact: Europe does not have enough fiscal firepower to handle an Italian crisis — at least in such a way as to protect creditors completely,” he continued.
With regard to the U.S., Johnson argued that an Italian default would have a much larger impact on American financial markets than recent events in Greece, Ireland, and Portugal.
As a result, Johnson urged U.S. regulators to conduct a new round of stress tests that assume sovereign-debt restructurings in Europe and take a realistic view of counter-party risks in opaque markets such as foreign exchange swaps. Based on those tests, the biggest banks probably need to suspend dividends and raise more capital as a buffer against losses.”
“It would be wise for U.S. banks to raise enough capital now to withstand any trans- Atlantic storms,” he concluded.
Spanish Mountain Gold Raises C$15 Million
- The proceeds from the offering will be used to advance the development of the Company's Spanish Mountain gold project in Canada, to explore the contiguous Cedar Creek claims and for general corporate purposes.
- All of the securities issued in connection with the offering will be subject to a four-month hold period in accordance with applicable Canadian securities laws.
- Pursuant to the offering, Mr. Ian Watson, a director of the Company, is expected to acquire 5 million of the units for approximately C$3 million. This represents approximately 20% of the offering and 3.19% of the issued and outstanding shares after the completion of the private placement. In addition, certain directors and officers of the Company are expected to acquire an aggregate of 800,000 units.
