Politics has never left the stage in this crisis and the solution of Europe's troubles depends on Spain's moves and on Italy's position, according to Cosimo Marasciulo, Head of Government Bond and foreign exchange at Pioneer Investments.
Politics has never left the stage in this crisis and the solution of Europe’s troubles depends on Spain’s moves and on Italy’s position, according to Cosimo Marasciulo, Head of Government Bond and foreign exchange at Pioneer Investments.
“Italy’s public finances are in a better shape than Spain’s first of all for averting a housing market collapse. Moreover, households’ wealth is still supportive as it may ease the refunding stress at government bond sales,” he said.
According to Pioneer, Italy’s technocratic government has taken several steps to impose fiscal austerity and pursue long-overdue economic reforms in spite of a few setback in the process.
“We believe that a formal request for aid is not needed although we still hold the view that drafting a memorandum of understanding with the EU may meet a favourable response in financial markets as it would put constraints on future governments’ electoral manifestoes and policy actions,” Marasciulo said.
Spain’s application should come first, with all risks related to a likely delay in negotiations.
Pioneer maintains that the latest central bank actions may keep markets relatively quiet up to a point and that worsening scenario outside EMU should not be ruled out, notably renewed concerns over a hard landing in China making the outlook for Europe fragile again.
“We took profits recently on our holdings in Spain in most actively-managed fixed-income portfolios, whereas we remain pretty constructive on Italy,” Marasciulo said.