Europe’s AAA members at risk as crisis worsens, Fitch says

Italy Vs Spain

Spain, which said June 9 there are no fiscal terms attached to its bailout, will fail to meet its budget deficit targets this year and next, Parker said, adding to a backlash against more bailout spending that is gaining traction in core countries such as Germany and Finland.

Italy is unlikely to need external support, Parker said.

“Italy is much closer to getting to a sustainable macro- economic position,” Parker said in the interview. “It is now running a pretty small budget deficit, has a much lower current account deficit, doesn’t have these problems in the banking sector.”

Italy will bring its budget deficit to 2 percent of gross domestic product this year, the European Commission estimates. That compares with a 6.4 percent shortfall in Spain. Spanish debt will be 80.9 percent of GDP in 2012, compared with Italy’s 124 percent, according to the commission. Greece will post a 7.3 percent deficit on debt of 161 percent of GDP, the commission said.

Still, “Italy does have high levels of government debt so there is very little headroom there to absorb any further negative shocks,” Parker warned.

ECB Cash

A Greek exit from the euro area would also make a third offering of three-year loans from the European Central Bank “inevitable,” Fitch Co-Head of Financial Institution Ratings James Longsdon said at the same event today. More long-term liquidity support from the ECB is growing “increasingly likely,” he said.

The ECB channeled more than $1 trillion into Europe’s banks in December and February to help prop up bond markets. Though the loans initially showed signs of helping to stabilize the region, Spanish and Italian bond yields have since resumed their ascent.

Bloomberg News

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