After Greece, is Italy next?

Since the Greek election and their decision to work with the Eurozone instead of leaving it, European countries are feeling bit relieved. Spain recently received $125 billion in bank bailout funds.

However, now the focus shifts to Italy. Italy is the third biggest economy in the Eurozone. Italy is showing signs of financial trouble for quite some time. Its 10-year government bond yields 6.2 percent, up from 4.8 percent in March 2012. Increased borrowing cost is a major concern for the European watchers.

Private capital is leaving the Italy. As of May 2012, Bank of Italy had a liability of $275 billion with the Eurozone. Compare this to $6 billion credit balance that Italy enjoyed in June 2011.

Italy’s 120 percent ratio of gross government debt to gross domestic product (GDP) is the second highest in the euro zone behind Greece.

Italy’s economy is also showing signs of shrinking. The Italian economy shrank 0.8 percent during the first three months of 2012. Its economy shrank during prior two quarters too.

If the sovereign debt crisis continues, Italy soon may fall into financial trouble. However, it appears that Italy has the full support of the European Union which may come to its aid if Italy falls.