The Ibex closed its worst week of the year, falling around 5 percent. Things got complicated after rumors pointing out weakness for Italy´s main banks, just before the European stress tests next week.
Financial markets did not take in consideration that Italy has large private savings and a bunch of public companies that could go private. Nobody cares about the lack of a housing bubble in the country or the great capacity of Italian companies to export.
With a debt reaching 120 percent of GDP, government expenses are a deadweight for the whole economy. That´s why S&P threatens to lower its rating, especially after Berlousconi´s latest plan to reduce spending has been delayed.
If Italy fails to fulfill its promise to cut public spending by 40,000 million euros, it can enter the PIGS´s slaughterhouse. The connections between these countries are evident. As one sneezes, the rest suffers high fever.
A higher risk premium in Rome immediately affected the Spanish risk premium, which climbed to 280 points. In the next week of stress tests and Bankia´s IPO, we must suffer a relapse. At the end, firewalls not always work.
