Italy, Key Domino of Eurozone Contagion, looks to China – 11 Updates

Enter the Dragon, to save Italy, and, the Eurozone

Italy, the Achilles heel of the Eurozone, seeks to entice China, owner of the largest concentration of foreign reserves on the planet, to provide needed liquidity by buying significant quantities of Italian sovereign bonds and equity positions of Italian enterprises.

With $3.2 trillion of foreign reserves, China is logical choice to serve as “white knight” to the EU.  Italy has sovereign debt levels approaching 120% of GDP, second only to Greece in the EU.  Italy is said to be willing to offer significant ownership of Enel, the Italian power utility, and Eni, the oil and gas multinational, and others as incentive for Chinese investment.

It is a critical time for both Italy and the EU, as the Eurozone faces insolvency and possible financial contagion.  There is significant risk for all parties to this “solution,” for Italy, more debt and giving up key assets may not be a real solution a debt problem, especially if China demands costly terms as Warren Buffett did of Bank of America.  The EU may have its most critical problems “kicked down the road” as a result of a Chinese-Italian deal, only to face an even more critical EU sovereign debt situation in the near future.

China is already facing a slowing economy due to the slowing world economy, weaker foreign currencies, and stronger Yuan.  These issues are exacerbated by China’s fraudulent spiking of its GDP by constructing ten cities the size of San Francisco annually (without the required population or industry), discovery of 50% more city and provincial debt than previously known in its first national audit, and an exponentially growing demand for energy and food from foreign sources.

A significant investment by China in Italy will save the EU, a major China trading partner.  However, that result may be short lived, especially if the EU economic infrastructure remains flawed, and China is ultimately hurt economically by the degradation of its foreign trade advantage.

Italy has turned to China because it is clear that the Italian economy cannot be saved by Germany, France, ECB, and the IMF, because it too large and is beyond their economic capability.  The only avenue open has been open market purchases of Italian bonds to suppress the yields to sustainable levels for Italy.

The insolvent ICB is now at the end of its ability to continue that strategy, causing Italy to seek a Chinese rescue.  China must now decide what it will do, and proceed carefully to balance its actions against consequences of their actions, both intended and unintended.  It may even be best if China takes no action, forcing the EU to restructure their alliance to more gracefully adapt to the changing financial landscape as the EU finds its way in the 21st century.  The world watches every move with hopeful anticipation.

It is a critical time for the world, the world monetary systems are threatened, the world energy natural resources are being taxed, and the world balance of trade is in dramatic flux.  Decisions now being made have far reaching consequences for people, countries, and the world, we need the best leaders to step up and lead.

Geoff

Postscript: September 13, 2011 Stock Market and Investing: Can the BRICS Countries Help Save the Euro Zone? – CNBC: http://www.cnbc.com/id/44508779

PS2: September 13, 2011 Italy Austerity Nears Approval As Pressure Mounts | Fox Business: http://www.foxbusiness.com/markets/2011/09/13/italy-austerity-nears-approval-as-pressure-mounts/

PS3: September 13, 2011 China’s Wen Promises More Support for Europe, Hints at Price – CNBC: http://www.cnbc.com//id/44512449

PS4: September 13, 2011 Jefferies Describes The Endgame: Europe Is Finished | ZeroHedge: http://www.zerohedge.com/news/jefferies-describes-endgame-europe-finished

PS5: September 13, 2011 Mish’s Global Economic Trend Analysis: China Premier Wen Jiabao Dampens Speculation on China Saving Europe with Statement “Debt-Laden Economies Must First Put Their Own Houses in Order”: http://globaleconomicanalysis.blogspot.com/2011/09/china-premier-wen-jiabao-dampens.htm

PS6:  September 14, 2011 Business Finance & Investment News | Hong Kong & China Business News | SCMP.com: http://www.scmp.com/portal/site/SCMP/menuitem.2af62ecb329d3d7733492d9253a0a0a0/?vgnextoid=794cdde177362310VgnVCM100000360a0a0aRCRD&ss=asia+world&s=business

PS7: September 14, 2011 Bottom Line – Widening European debt crisis raises global recession risk: http://bottomline.msnbc.msn.com/_news/2011/09/14/7760785-widening-european-debt-crisis-raises-global-recession-risk

PS8: September 16, 2011 Even amid eurozone crisis, Italians chafe at deeper cuts – CSMonitor.com: http://www.csmonitor.com/World/Europe/2011/0916/Even-amid-eurozone-crisis-Italians-chafe-at-deeper-cuts?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+feeds%2Fworld+%28Christian+Science+Monitor+%7C+World%29&utm_content=Google+Feedfetcher

PS9: September 19, 2011 Euro Zone Crisis: Italy’s Debt Downgraded by S&P; Outlook Still Negative – CNBC: http://www.cnbc.com//id/44586211

PS10: September 22, 2011 Mish’s Global Economic Trend Analysis: Asia Bloodbath Follows US Selloff on Wednesday; Europe Bloodbath Follows Asia Bloodbath; US Futures Red for Thursday: http://globaleconomicanalysis.blogspot.com/2011/09/asia-bloodbath-follows-us-selloff-on.html

PS11: November 12, 2011 Testosterone Pit – Home – The Eurozone Turns Down Chinese Money And Quid Pro Quo: http://www.testosteronepit.com/home/2011/11/11/the-eurozone-turns-down-chinese-money-and-quid-pro-quo.html

 

References:

1)   September 12, 2011 Italy turns to China for help in debt crisis – FT.com: http://www.ft.com/cms/s/0/90c4c7f6-dd54-11e0-9dac-00144feabdc0.html#axzz1XlzFg6Hu

2)   June 25, 2011 Enter the dragon ‘to save the euro’ – Telegraph: http://www.telegraph.co.uk/finance/china-business/8598998/Enter-the-dragon-to-save-the-euro.html

3)   July 13, 2011 Analysis: China to see bumpy patch, but no crisis, on local debt | Reuters: http://www.reuters.com/article/2011/07/13/us-china-debt-idUSTRE76C0UL20110713

4)   May 9, 2011 We Know America and the Euro-Zone are Lying, is China? | GeoffTalk: http://geofftalk.com/?p=83

Plus, over 45 previous GeoffTalk.com postings since May 2011 have expanded on the subjects of Euro-Zone, Greece, Portugal, Ireland, Italy, Spain, Germany, France, European Central Bank (ECB), International Monetary Fund (IMF), US Federal Reserve Bank (FED), Organization of Oil Exporting Countries (OPEC), BRIC (Brazil, Russia, India, China), World Financial Contagion, Derivatives, Credit Default Swaps (CDS), US Debt Ceiling, Quantitative Easing I, II, III (QE I, II, III), Gold, Silver, Oil, Peak Oil, Commodities.

 

 

 

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