A blog on the political, economic and social causes and implications of the crisis in the Southern periphery of the Eurozone.

I'm a political scientist working on political parties and elections, social and economic policy and political corruption, with a particular focus on Italy and Spain. For more details on my work, see CV here, and LSE homepage here. For media or consultancy enquiries, please email J.R.Hopkin@lse.ac.uk.

Monday, August 8, 2011

Trichet to the rescue

Looks like the ECB will act to try and calm the flight from Italian and Spanish debt. In the short term, some impact can be achieved with a relatively small outlay, but in the longer term - ie if the short-term fix doesn't calm the markets - the funds involved start to get scary, with Italy, Spain and the smaller debtor nations amounting to a third of Eurozone GDP, and Italian debt alone amounting to rather more than €1 trillion.

Krugman usefully points out that Italy has a large debt, but its deficit is far more stable than the others, and therefore ECB intervention may do the trick. In the other cases, deficits are larger and the result of economic collapse, and therefore the medium term prospects will require greater intervention.

Thursday, August 4, 2011

Way down in the hole

The bond markets have finally decided to start bullying Italy, and are now doing so with a vengeance. The spread with the Bund is close to 400 bpts, which means that a third of the Eurozone is now facing sovereign debt distress. The ECB has to start wielding a big stick quickly if this is going to stay together.

But Italy and Spain are facing political vacuums too - Zapatero has thrown in the towel and called for new elections in November, in which he will not stand. Berlusconi's government is by now close to zombie status, but removing him and finding a credible alternative will take months, possibly years. So, there is a space of a few months for all this to get much worse before any political response can emerge.