James Forsyth

The Italian domino effect

The Italian domino effect
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For all the debate about Theresa May and border security, the big news has not been at Westminster today. Instead, people have been watching what is happening in Italy. For it is far from certain that Europe, or the Western world for that matter, has a bucket bigger enough to bail out a country that owes more than Greece, Ireland, Portugal and Spain do combined.

As the New York Times reports, the European Central Bank is reluctant to step in and start buying Italian bonds because it fears that its previous bond buying efforts have simply enabled the Italians to avoid necessary reforms. It feels that only market pressure will make the Italians actually act.

But this is a dangerous game to play because if Italy falls, France will be left teetering on the brink. BNP Paribas has 12.2 billion euros of Italian sovereign debt and Crédit Agricole  8.7 billion. France could not recapitalise these banks without losing its treasured triple A rating.