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Italy’s Woes Set to Eclipse Greece in Sovereign Debt Crisis

The President of the Italian Chamber of Deputies, Gianfranco Fini, receives the President of the Parliamentary Assembly of the Council of Europe, Mevlut Cavusoglu in October 2011

With Italy now teetering on the cliff edge, the Eurozone remains at huge risk of meltdown. Amazing buying opportunities in a resultant crash are the only silver lining.

European governments – the same ones that tax the bulk of the region’s private GDP – appear unable to mobilize themselves into saving the economic fabric they are so utterly reliant on.

Greece’s problems are old news. The country is broken, has defaulted in all but full legality and now has an emergency government of national solidarity.
The crisis now has a new, Italian, chapter. European authorities must view Greek problems as small fry now, as Italy and Spain begin to falter. If those countries tip into the abyss, France is likely to follow.

If France were to fall, a global sovereign lending strike could hit, taking the world economy into uncharted territory in what would amount to a total, global economic malfunction.

It’s no wonder the US and UK have expressed more than a hint of panic in their responses at recent global economic summits.

Germany cannot stomach the thought of the European Central Bank (ECB) fuelling inflation to dissolve European-wide state debt.  It’s refusing to let the EU take this classic path to reset out-of-control debts. It does not want to risk a repeat of the 1920s and therefore, by implication, the 1930s. As a captive of history, Germany appears to be creating the perfect conditions for a Europe-wide meltdown. Unless Germany relents the Euro will collapse.

It is unbelievable that this could happen but every day that passes seems to underline that Germany will not let Europe proceed on the only course necessary to save Europe’s currency: the printing of huge sums of money.

The US has been doing just that since 2008. It has no qualms with resorting to Quantitative Easing to keep the financial oxygen flowing over its economy. As a member of the Fed recently asked, is five per cent inflation less desirable than 10 per cent unemployment? Germany says it is, holding the veto on the Euro and thus, by default, European finances.

Back at the stock market, the market is falling away heavily again, after a strong rally driven by Sarkozy and Merkel’s recent unambiguous statement that they would fix the problem by the end of October.

It shows just how much desperate hope there is in the market that this utter loss of face by Europe’s self-appointed saviours has been brushed over. People in financial straits often say that something will happen ‘because it must’ to rescue them. They convince themselves cosmic forces are on their side and that wishing ferociously for rescue will deliver it.

It seems this is what the market is praying for: a hidden rescue just over the horizon.  It is praying that armies of financial bureaucrats are grinding away to build the final economic offensive that will stem the flow of crisis. It is an easy dream to have. Yet every summit highlights the fact that no one is in charge in Europe. No one has a mandate to do what is necessary to prevent the failure of the Euro. The situation appears to be a runaway train with no one in the cab.

There is an opportunity here, however. If the Euro does go into terminal meltdown, the resultant financial collapse will create fabulous buying opportunities.

Unlike governments, which redistribute wealth, companies create it. Good companies therefore survive meltdowns. That is not to say their share prices do not collapse alongside the economies they power. Nonetheless, they prevail. In a crash, these companies can be bought into at very low prices.

A Europe-wide meltdown will present the careful investor with a huge buying opportunity. This will not be a once in a life time opportunity – there have already been two such opportunities in the last decade: the credit crunch and the pit of the dotcom crash.

If there really is no one in the locomotive to stop the Euro train from crashing then there will be a period of giant upheaval and a stock market crash. Once this has happened, the following period will be the time to load up on equities. Remember, there will be no rush to do so and no purpose in buying anything but the most solid companies .

This is the sole consolation to be had. In chaos, there is opportunity. Meanwhile, the world looks on in horror, hoping that actually, there is someone in charge who will save the day.

About Clem Chambers

Clem Chambers
Clem Chambers is the CEO of financial website ADVFN.com and author of “101 Ways To Pick Stock Market Winners".

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