Professor Edward Altman explains the results of his Eurozone sovereign risk assessment in “The Fate of the Euro Hinges on Italy. Italy’s Looking Iffy,” an op-ed in Forbes.
One year ago, I wrote about the European debt crisis and predicted that Italy would be either the hero or villain of the Euro. I felt then, as I do now, that the escalation
of the crisis would come down to whether one of the key Southern European
countries would be able to survive, without a bailout, the onslaught of a
capital market “attack.” Based on the inherent strengths of its fundamental
competitive and wealth attributes, I concluded that Italy would be the “fulcrum
country,” with a 70% chance to emerge successfully, enabling the Euro itself to
survive. Since the end of 2010, unfortunately, Italy’s fundamentals have
deteriorated dramatically, its economy is in a double-dip recession,
unemployment is over 10%, and even top European politicians are now saying that
the Euro’s survival is at the critical stage. My current assessment is that
Italy’s, and also the Euro’s, solvency is at best a 50-50 probability,
notwithstanding the announced change in EU policy toward pumping €130
billion of fiscal stimuli into the most vulnerable European nations and steps
toward a financial and political union.