Thursday, May 31, 2018

Former IMF Top Economist Warns About Italy

Former International Monetary Fund chief economist Olivier Blanchard told CNBC's Joumanna Bercetche in Paris, "I'm very worried about Italy."

"The writing was on the wall," Blanchard said on Tuesday when global markets were diving because of fears of an Italian financial crisis. "When you have capital mobility, and you give signals that you might not stay in the euro ... then you expect investors to move, and I think that's what we are seeing."

Asked if there may be positives to the standoff in the form of EU concessions for Italy in order to prevent a pull-out, Blanchard responded, "No. I am not optimistic."

Blanchard, however, said, "I suspect in this case the EU will do whatever is needed to prevent contagion, so I'm not terribly worried about contagion," Blanchard said. "I'm very worried about Italy. Not worried about the rest of Europe. It will be tough, but the rest of Europe, the rest of (the) euro will be OK."

He is not concerned about contagion, of course, because he fully expects the European Central Bank to step in and bail out the non-Italian European banks who have exposure to Italian government debt.

The total amount that international banks have lent to Italy is € 550 billion.

The total exposure of French banks to Italian debt exceeds 250 billion euros. German banks hold € 83.2 billion worth of Italian bonds on their books. The already deeply distressed Deutsche Bank alone has over € 11.76 billion worth of Italian bonds on its books.


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