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Thursday, July 11, 2013

Will Italy Listen to Its Downgrade 'Wake-Up Call?

Wake-up call to do what? To implement austerity, thus, further encouraging capital outflows and economic implosion. Italy, like States within the U.S. Union, cannot devalue its currency to relieve its debt burden without structural Eurozone reform.

Market forces will 'correct' the problem by pressuring Italian bonds (rising yields). Ultimately, this will create a response from a Eurozone that is increasingly reluctant to sacrifice good money and social order without Eurozone reform regardless of the number of wake-up calls issued.

Chart:  Euro ETF (FXE)


Chart Comments:


  • Red/yellow equals Euro downtrend
  • Green/blue equals Euro up trend.


Headline: Will Italy Listen to Its Downgrade 'Wake-Up Call?

Italy's credit downgrade should be viewed as a "wake-up call" by the country's fractious government, analysts told CNBC - but they remained divided over whether the announcement would have any impact in Rome.

S&P lowered Italy's sovereign credit rating to BBB from BBB on Tuesday, citing the country's weak economic prospects. The new rating is two notches above "junk" status. The agency left the country's outlook at "negative" and said there was at least a one-in-three chance the rating would be revised down again this year or next. Italy's FTSEMIB (FTSE International: .FTMIB-GB) benchmark index fell after markets opened on Wednesday, and was 1.2 percent lower in mid-morning trading.

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