You’ve probably seen the math by now….There is just no way Italy is going to grow their way out of what some are (incorrectly) calling a debt crisis. And the other peripheral countries are in similar positions. These two headlines from Reuters pretty much sum up the situation in Italy:
“Italy to raise 2012 debt/GDP target to 123.4pct from 119.5pct, hikes 2013 to 121.6pct from 116.1 pct
Italy CUTS 2012 GDP forecast to -1.2pct from -0.4pct, raises 2013 to +0.5pct from +0.3pct”
And we should expect that 2013 forecast to get slashed when they try to balance the budget and growth continues to sink just like we’ve seen in Greece.
So the story has become simple. As long as the ECB is willing to write the check then they can hold the line. The big risk now are civil unrest leading to political upheaval and potential defections/defaults. How long can these countries impose depression on their citizens before they finally realize that this currency system is simply not working? The core must either move more quickly towards unification and a true resolution of the currency crisis or risk increasing turmoil and eventual combustion….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.