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Here comes the next euro crisis

POLITICO, (2018), “Here comes the next euro crisis”, 27 Νοεμβρίου

The most worrying thing is that Europe itself is becoming an ever-more salient issue cutting through parties, parliaments and populations. Pro- and anti-EU camps are competing in elections across Europe today.

The next crisis will not be sparked by some unpredictable “black swan.” Rather it will be brought about by a self-fulfilling prophecy: Banking systems showing weaknesses, countries losing access to debt markets — the next crisis movie is one we will likely have seen before.

At present, Italy is obviously the No. 1 candidate despite its decent economic fundamentals. However, investors are mainly concerned about the general policies and trajectory of the Italian government. Looking ahead, the risk is that Rome’s anti-EU stance will harden — possibly as a scapegoating strategy given the likely adverse impact of the budget on economic growth or simply as an electoral strategy for the 2019 European Parliament vote — leading to a sharp increase in market spreads and pushing some banks into a very difficult spot.

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