10th July 2015
There are fears of contagion due to the eurozone crisis but Italy is not the next Greece, says GAM investment expert.
Enzo Puntillo, investment director at GAM, said investors should not fear a risk of contagion. There has been concerns about the ‘Piigs’ – the acronym used for peripheral European countries – but these are unfounded.
‘Greece clearly has all the symptoms of a full-blown debt crisis, but its fellow Piigs have very minor symptoms in comparison,’ said Puntillo. ‘The peripheral countries have all made significant adjustments in recent years to reduce fiscal and current account deficits, but Greece has not gone far enough to become a more competitive economy.’
Puntillo said the European Central Bank will do ‘whatever it takes’ to stop the eurozone collapsing, including ‘taking steps to limit contagion of the Greek crisis’ and has ammunition to do so, such as quantitative easing.
As for Italy, which is branded as one of the Piigs, Puntillo said there was no concern.
‘Italy…had not experienced a substantial increase in debt, and its current account and fiscal deficits were not extreme,’ he said. ‘The difference between the Italian and the Greek economies remain striking and we believe it is very unlikely that Italy will be a victim of contagion.’
‘The debt in Italy is held predominantly by the domestic private sector, compared to Greek debt, which is held mainly by foreign lenders. Italy’s levels of household wealth are among the highest globally, stronger even than Germany. Defaulting on debt held by its own people is not an option for Italy, any move in that direction would be political suicide. Italy also has a very strong export market, including in luxury, machinery, vehicles and pharmaceuticals; this is a major advantage over Greece.’
However, he said there was still work to be done in Italy and the government needs to create ‘flexibility in the labour market to increase the number of jobs available to young people and take steps to increase female participation in the workforce’.