A German economist is warning that another European financial crisis could be on the horizon. Dr Lars Feld, who sits on the German Council of Economic Experts, believes Italy could be ground zero for a new crisis at a time when the Eurozone is particularly vulnerable. Italy’s economy is shrinking at the same time it is dealing with government debt, and a banking crisis. A recession is all but guaranteed at this point, and the nation’s financial credibility is in question right now. In an interview with the British Broadcasting Company, Feld said “The banking system in Italy is not as safe as we might hope for. There is the potential for contagion, in particular, from the Italian banking system to other banking systems.”
Feld’s warnings are certainly not falling on deaf ears. Italy has been a concern for years, going back to the days following the 2008 global financial crisis. Unfortunately for Rome, and Brussels, no solution was ever put forward which effectively dealt with the Italian problem. As a result, Italian debt has skyrocketed while economic growth has been minimal at best.
EU intervention is not probable at this time. Brussels feels such a move could bring on a major financial meltdown across Europe. Italy is in the unique position of being too big to fail, yet simultaneously too big to save. To make matters more complicated, Rome and Brussels have been at a political standoff over Italy’s economic mess. The present Italian government is resisting EU oversight and this does not appear likely to change at any point soon.
Italy is not the only worry for the Eurozone. Germany’s economic expansion is slowing down immeasurably. The German government’s forecast for economic growth has been revised. Berlin now expects a grown of 0.5 percent, down from the 1.5 percent forecast earlier this year. Global competition has intensified, and Germany is responding slowly to the new challenges.
With EU parliamentary elections coming later this week, the economic concerns are sure to be on the minds of at least some voters when they go to the polls.