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Stubborn Italian Problems Threaten the EU and Rest of World Economies

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Stubborn Italian Problems Threaten the EU and Rest of World Economies

Photo Courtesy of CNBC

Amidst all the attention-grabbing headlines about the United States versus North Korea, it is easy to miss one of the most critical issues facing (and threatening) the world economy today. This is the continuously bad (and seemingly irreparable) situation in Italy. The IMF International Monetary Fund has recently issued a new set of opinions on the G7 stalwart, NATO member, and founding member of the European Union and Euro Zone.

Their words of warning should spur you to action regarding the safety of your retirement portfolio. Gold is the ultimate historically proven and time-tested safe haven asset in politically unstable and economically troubling times like the ones in which we find ourselves today.

Gold protects against potential economic collapse and financial chaos. Now is the moment when you should be reviewing your options on Gold IRA rollovers, as well as the best Gold IRA allocation strategies. Your next prudent stop after that might be the Top 5 Gold Coins for Investors.

The Greatest Threat to the Future and Stability of the Euro Zone and Entire EU Remains Italy

Despite the fact that a few recent data releases have exceeded the abysmally low expectations, Italy remains the country to watch and the single economy which represents the greatest threat to and danger for the euro zone and European Union as a whole. Senior Economist Marco Wagner at Commerzbank in Germany recently warned via an email:

“Italy's GDP (gross domestic product) year-on-year percentage change is only half of the euro zone average. This shall remain so for the time being.”

He is not exaggerating the poor statistics whatsoever. The best the Italian economy can hope for in 2017 is a measly .9 percent gain with a slightly improved outlook of 1.1 percent for 2018, per the European Commission economic forecasts.

Compare this to the rest of the euro zone's 2.1 percent as of second quarter year on year growth and 1.9 percent in first quarter 2017, and you begin to understand that Italy is running less than half the economic improvement of the rest of the zone. The IMF weighed in on Italy's risks with:

“The recovery is expected to continue, but risks ahead are significant. Among these are political uncertainties, possible setbacks to the reform process, financial fragility, and reevaluation of credit risk during monetary policy normalization.”

The G7 Heavyweight's Main Issues Are More than Just Bank- and Economic-Related

As the IMF professionally opined, Italy's problems are so many and diverse it is hard to know where to start when considering them. You could start with economic and bank related dilemmas that threaten the G7 member state. Professor of International Political Economy Erik Jones at Johns Hopkins University suggested one of them is serious and imminent with:

“At some point in the future the ECB will raise rates, which question the sustainability of Italy's debt. There's a giant amount of non-performing loans (NPLs). The economic recovery is taking place but at a really slow pace… (And) there's political risks in the horizon with the upcoming general election.”

Italy's banking situation and serious bad loans are their first nightmare. The IMF reveals that the non-performing loan levels remained at a staggeringly high 356 billion euros as of June of 2016. This represents a shocking 18 percent of all loans on Italian bank books.

It is also a scary 20 percent of Italy's entire Gross Domestic Product, and a full third of all the NPLs of the entire euro zone region. The figures may have declined some since the peak of the Global Financial Crisis, yet they need desperate additional measures, the IMF opined. The chart below says it all:

This all matters enormously for general economic recovery, as the incredibly high levels of bad loans restrict the various banks' abilities to lend out money to new borrowers. They also tie up vitally needed funds that should be going to the more competitive segments of the Italian economy. In a country as heavily indebted as is Italy, this is a serious and difficult to effectively address problem.

The nation's public debt levels are a staggering 133 percent of Italian GDP for this year, only declining marginally (hopefully) to 131.6 percent for 2018, per the economic forecasts of the IMF. This will become a simply enormous problem for Italy and the entire European Union as the ECB European Central Bank starts raising its euro zone wide interest rates, which markets anticipate will finally happen sooner than later. Jones at Johns Hopkins agreed:

“At some point in the future the ECB will raise rates, which question the sustainability of Italy's debt.”

Such higher interest rates will not only irreparably wreck the balance sheet and budget of the Italian government, it will also lead to inevitably higher interest rates for all borrowers throughout Italy. This only raises the odds of still more future defaults on bank loans, car loans, mortgages, and other forms of borrowing going forward.

Political Problems in Italy Could Be the Undoing of the European Union Experiment In Under A Year

These issues are serious enough, yet they pale in comparison to the serious dangers posed by the upcoming Italian general election next year. Current opinion polls remain in line with the worsening trend showing the Italians firmly and steadily moving away from the EU-friendly parties and towards the anti-European Union and anti-euro parties like the Five Star Movement of Beppe Grillo.

Today the political parties representing the Euro-skeptic views enjoy the majority of Italian voter intention support, per the below graph put together by Commerzbank:

Graphic Courtesy of Commerzbank. The chart shows the average of the latest ten polls of various polling institutes. The labels regarding which political party is euro-sceptic, -friendly is Commerzbank’s perception.

The graph clearly demonstrates that the Euro-friendly parties will not be able to amass a governing coalition, while the anti-Euro parties championed by the likes of the Five Star Movement and Northern League are already close ot reaching a 50 percent thresh hold between only the two of them (enjoying 43 percent support in common today).

The stated aims of both the Five Star Movement and Northern League are to withdraw from the euro currency in order to return to the age-old Italian lira and to hold referendums on continued European Union membership. Polls consistently show the Italians will opt to get out given the chance.

The IMF is of the opinion that additionally painful reforms are the best medicine that Italy desperately needs to significantly improve further.

“Italy has started to grow again in recent years. But the recovery has been too weak to help claw back the ground lost from sub-par growth that started well before, and was exacerbated by, the Global Financial Crisis.”

What the IMF fund is suggesting centers on higher levels of public investment, bringing a greater number of people and business enterprises into the tax arena, more appropriately allocating resources to the vulnerable members of society, lowering tax rates on labor, and lowering pension spending. More than half of these measures are extremely politically unpopular with the already angry Italian electorate.

Gold Can Protect Your Portfolio from Italy's Deepening Political and Economic Woes That Threaten the Eurozone, the European Union, and the World Economies

This all matters significantly to you because what is bad for Italy is negative for the euro zone, the European Union as a whole, and ultimately the entire world economy. If the euro zone comes unglued, the entire European Union will likely not be far behind. The question revolves around whether or not the continental block can survive a core founding member like Italy withdrawing or not. Most analysts are of the opinion that it cannot.

Gold is your best weapon and greatest proven line of defense in safeguarding your own retirement portfolio from the chaos that the breakup of the European Union would unleash on the geopolitical world and global economy. IRA-approved gold will ensure that you have some significant value left propping up your retirement accounts if this black swan proves to be more than the overstretched and significantly overvalued world equities markets can take. It's all part of why gold makes sense in an IRA.

David Crowder

About David Crowder

W.D. Crowder is an American published author. His background and areas of expertise include history, economics, expatriate living, international relations, investments and personal finance. A widely read and top of his class graduate of Stetson University, he obtained his bachelor of arts degree in History with minors in Latin American Studies and International Relations and a special emphasis in Economics. He was President of his Phi Alpha Theta (National History Honors Fraternity) Stetson University chapter and a Phi Beta Kappa (National Honors Fraternity) member.