Bailing out process in EU seems to have no end – financial adviser

Italy's markets plunged on Tuesday over fears the country may become the next EU state to ask for a helping hand. Financial adviser Marco Pietropoli says the question now is whether the EU wants to bail out countries, not whether it can afford it.

­On Tuesday Italy's ten-year bond yield hit a new record above six per cent at one point, though investors were relieved to hear the finance minister, Giulio Tremonti, announcing plans to accelerate Italy's austerity measures.

"I am going to Rome to close the budget," Tremonti told reporters as he left the EU finance ministers' meeting in Brussels, adding that a set of budget cuts is expected to be approved within a week.

The EU ministers are confident that the Italian government will push through its ambitious austerity program, says German finance minister Wolfgang Schaeuble.

"No one has any doubt that this will happen and that the financial markets will then assess the situation in Italy more realistically," he said.

In the recent weeks, the situation within the eurozone’s third largest economy has deteriorated substantially, as Italy now has to pay a much higher interest to raise money, says Marco Pietropoli, a financial adviser with RM Wealth Management. He explains it by the market’s fear that the country will not be able to handle or service its debt.

Whether the EU can put together a rescue package for the short term – it is probable. Whether they can afford a debt-restructuring solution for Italy remains to be seen. But it is not in many ways a question whether they can afford it – which is questionable – but whether the Germans want to keep bailing out countries. As far as the Germans are concerned, I am sure they want it to come to an end,” he says.

Still, to receive further funds from the EU, Rome will have to impose some austerity measures, as the country has been living well beyond its means. This will mean cuts in the public sector, including jobs and pension reductions, which might cause unrest among Italians.

The adviser believes the situation with unfolding economical crisis in the EU shows the eurozone is “unsustainable” and needs either a structural reform of the euro or the break-up of the currency.

That is the fundamental problem,” Pietropoli concludes. “This situation started with Ireland and Greece and then developed in Portugal, and now we are talking of Spain and Italy – it seems to have no end.