Italy appears to be the next European country to require a bailout in order to prevent its debt crisis from spreading.
At a G-20 meeting in the French city of Cannes, several European Union leaders discussed their aims to curb the continent’s debt woes. Their plans include an expansion of the euro-zone bailout fund to $1 trillion and an agreement with banks to handle 50 percent of Greece’s debt. Still, they fear that the financial turmoil that threatens Greece’s presence in the euro-zone will spread to Italy.
Several leaders recommended that Italian Prime Minister Silvio Berlusconi push ahead with reforms suggested by the government this past summer. The Italian government must make an effort to open up its labor markets, reform its tax system and come up with more options to improve its growth rate.
Junior marketing major Justin Worden expects the financial woes in Italy to not only have an impact on the European economy, but also that of the entire world.
“The debt problem that Italy is facing will affect other markets around the world, including the United States and Asia, because the economy is becoming such a global network,” said Worden.
Italy’s borrowing costs for 10-year bonds rose to 6.1 percent, the highest level since the conception of the single currency more than 10 years ago. The country’s current debt is roughly $2.6 trillion.
Italy has the fourth-largest economy in the European Union and is the world’s fourth-largest borrower after the United States, Japan and Germany. Because the country’s debt is so substantial, investors are hesitant when it comes to buying up the debt.
Sophomore finance and international business double major Joey Kroll fears that Italy’s financial conditions will influence the job market, particularly for someone who is interested in going into international business.
“It will have a domino effect on the rest of the world, so it is definitely a scary situation for me because there are so many people looking to find stable jobs in business,” Kroll said.
Italy plans to start cutting its public debt ratio beginning in 2012. It insisted that its government debt as a share of gross domestic product would soon see a rapid decline and that it hopes to balance its budget by 2013.
Yet even with the euro-zone’s new package, there is no clear end in sight for Europe’s financial troubles, and it appears that recovery for Italy could take quite a long time.