“New Economic or Financial Crisis” in the Eurozone Could Start in Italy: French Government Frets

While contagion is definitely contained, the Eurozone “is not sufficiently armed to face a new economic or financial crisis.” French banks are heavily exposed to Italy.

“Don’t underestimate the impact of the Italian recession.” This was the stark warning from French Economy Minister Bruno Le Marie in an interview with Bloomberg News. “We talk a lot about Brexit, but we don’t talk much about an Italian recession that will have a significant impact on growth in Europe and can impact France because it’s one of our most important trading partners.”

Italy’s economy as measured in real GDP shrank for two quarters in a row, which puts it into a “technical recession”:

It’s the second time in four months that France’s Economy Minister has expressed deep concern about the Italian economy in public. At the end of October he urged the commission to “reach out to Italy” after the EU’s executive had rejected the country’s draft 2019 budget for breaking EU rules on public spending. Le Maire also conceded at the time that while contagion in the Eurozone was definitely contained, the Eurozone “is not sufficiently armed to face a new economic or financial crisis.”

The French government is now openly worried that such a crisis could begin in Italy. The economies of both Italy and France are tightly interwoven, with annual trade flows of around €90 billion. More important still, French banks are, by a long shot, the biggest owners of Italian public and private debt, with total holdings of €311 billion as of the 3rd quarter of 2018, according to the Bank for International Settlements — up €34 billion from the 1st quarter of 2018

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