Weekly Commentary – Italy, Spain and France – The latest development and implications
Italian ex-Prime Minister Mario Monti announced he will seek his second term last week with the support of centre-left Democratic Party (PD). Mario Monti, a former European Commissioner, replaced Silvio Berlusconi as Italian Prime Minister to lead a new unity government in Italy since November 2011. Mont’s government introduced emergency austerity measures in his term and restored the market confidence successfully. The Italian government bond yields dropped sharply since he became Prime Minister. He resigned this month as Silvio Berlusconi's party withdrew its parliamentary support for his technocrat government.
With the support of centre-left Democratic Party (PD), Monti is likely to win in the election on February 24-25. Even most Italians are against Monti to run for his second term in the election, politicians abroad and investors welcome to his decision. The real challenge of Monti is whether he can convict the international borrowers that he will stay with the agenda he laid out. We do not believe Italy will become the source of market instability in the first half of Year 2013.
In contract, we are more worry about the status in France and Spain. As we mentioned in the weekly discussion which published on 26th November “Downgrade of France and European Debt Crisis”, the reform in France is lagging behind PIIGS countries in the region. Spain faces more bond pain in Year 2013. Both redemptions and funding needs under year 2013 draft budget rise are Euro 110 billion. Huge amount of Spanish debts will be matured between February 2013 and April 2013. These can attract attacks from speculators easily if these situations remain unchanged.
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