Italy is being touted as the country that is too big to save. And with the ECB legally prevented from being a lender of last resort, an Italian debt restructuring is inevitable, according to Nouriel Roubini.
Italian 10-year yields have exploded over 7% and clearing house LCH.Clearnet SA has raised the cost of trading Italian debt.
With the the turmoil in Italy, Ireland is having a harder time convincing markets and investors that it could escape contagion. Meanwhile, Greece is still waiting on a new government.
As the European debt crisis continues, we drew on UBS analyst Andrew Cates’ aggregate balance sheet risk index to provide a snapshot of the financial fragility of countries that look most likely to default. The factors that help determine balance sheet risk include high cumulative credit outstanding, high banking sector leverage as measured by loan-deposit ratios, and substantial public sector debt as a percentage of GDP.
Note: All data is for 2010. The Balance Sheet Risk index depends on several indicators that include credit to GDP ratio and loan to deposit ratio (which are both measures of bank risks), public sector debt as a percent of GDP, and indicators of external fragility like current account balance to GDP ratio and external debt to GDP ratio among others.
Credit to GDP ratio: 5.1%
Loan deposit ratio: 147%
Public sector debt as a percent of GDP: 92.7%
Total score: 4.8
Credit to GDP ratio: 24.6%
Loan deposit ratio: 106.3%
Public sector debt as a percent of GDP: 54.2%
Total score: 4.8
Credit to GDP ratio: 21.2%
Loan deposit ratio: 113.3%
Public sector debt as a percent of GDP: 35.3%
Total score: 5.1
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