The debt crisis in Europe has been focused on the negotiations between the “troika” and the Greeks but there are some much bigger concerns on the horizon and one of these is the almost complete collapse of credit in Italy. There is simply no availability of credit to even the largest Italian concerns and the small to mid-sized companies are starting to fail in droves – regardless of the fact that many of them have developed some solid markets and would be in a position to expand if they money to do so. This is the kind of credit crisis that emerged in the US in 2008 and sent the world into severe recession.
Analysis: The banks are not lending because they have no sense of what is going to happen to the bonds they invested in. If they are expected to take losses of close to 80% on these bonds they have shredded their ability to loan. The watchword is extreme caution and the banks are on the verge of hoarding. There have been plans to recapitalize these banks but no real progress has been made on a system and the banks are left in limbo.
Source: Courtesy of Dr. Chris Kuehl, Armada Corporate Intelligence