David Chaston details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news that the Italian debt spiral is careening out of anyone's control.
Overnight, yields on Italian bonds soared to the highest level since the introduction of the euro, sending 10-year debt yields above 7% and putting the euro-zone’s third-largest economy well into the danger zone.
Just to pay their interest, the Italians now need a budget surplus of almost 11% of GDP and they are 'only' running surpluses of 4% or so.
No one wants to lend when the funds will only be used to pay the interest on previous loans.
The situation is unsustainable even in the short run and the Italian parliament's emergency moves to pass another austerity package looks as useless as all the previous moves.
This is what contagion looks like.
The problem for the world is that Italy is too big to be bailed out by other EU members, and neither the US nor China show any enthusiasm to step up.
IMF chief Christine Lagarde warned of the risk of a “lost decade” for the global economy unless nations act together to counter threats to growth.
The US dollar surged overnight, especially against the euro. But it also rose against 'risk' currencies like the NZ dollar and our dollar buys only 78.5 US cents this morning, more than a cent less than yesterday.
The news is all about financial stability - Europe's lack of it. Here in New Zealand, the Reserve Bank releases its latest assessment of New Zealand's financial stability this morning. Our high debt levels and low growth have some similarities to the European troubles and how our politicians and professional policy makers respond is an issue we all should engage with. Bernard Hickey is in Wellington and will be reporting from the Reserve Bank on New Zealand's financial stability soon after 9 this morning.
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