While Greece is close to getting a helping hand, other economies in the European Union are still struggling. While Italy and its exchange traded fund (ETF) are forecast for stronger growth this year, the country is still grappling with high unemployment and a big fiscal deficit.
Italy’s economy has been forecast to grow 1% this year on the back of stronger exports, Lorenzo Totaro and Flavia Krause-Jackson for Bloomberg report. That beats the previous forecast of 0.6% growth. Consumer spending is also forecast to increase 0.8% this year and 1.1% in 2011; exports may grow 3.8% this year and 3.9% next year.
Christopher Amsden for The Wall Street Journal explains that derivative contracts taken out by Italian municipalities could harm local public finances for decades, as debts and imbalances may magnify over time.
Italy used a currency swap to help its application to join Europe’s monetary union at its birth more than a decade ago, and this is the same situation that Greece is going through.
Originally the derivatives were used to hedge balance sheet risks, but many small Italian municipalities lacked proper judgment in how to use them, and may have mistakenly used them to garner up-front cash. Italian cities are facing large amounts of debt as time has gone on. [Italy: A Slow and Steady Outlook.]
Meanwhile, the European Union may need to limit any more appreciation of the euro. A decline in the euro to $1.25 or $1.30 would be “better for Europe,” one analyst says. Sara Eisen and Allison Bennett for BusinessWeek also say that the EU has paid for an overly strong euro for some time now and simply can’t afford. [The Impact of a Weakening Euro.]
For more stories about Italy, visit our Italy category.
- iShares MSCI Italy Index (NYSEAca: EWI)
- CurrencyShares Euro Trust (NYSEAca: FXE)
Read the disclaimer, as Tom Lydon is a board member of Rydex|SGI.
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