Italian debt: larger threat than Greece to UK

FSA senior members have confessed that Italy’s escalating debt is a bigger threat to the UK’s financial system than the more publicised struggles of Greece.

Senior members of the FSA have admitted that Italy’s escalating debt is a greater threat to the UK’s financial system than the much publicised struggles of Greece.
Adair Turner, the chairman of the FSA, and the regulator’s chief executive, Hector Sants, spoke on Tuesday before the Treasury Select Committee and both stressed that the exposure of the UK’s financial sector to Italy warrants attention despite not being particularly large.

Turner said: “Italy as a direct exposure is not very large and that was part of the disclosures and the stress tests earlier this year. The bigger issues arise if the problems in Italy have consequences for other banks throughout Europe.”

When the TSC asked if the FSA regards Italy’s economic state as a greater danger than Greece’s in its scenario planning, Sants starkly replied: “Relative to its impact on UK banks…yes.”

Sants went on to explain that the reason why the Italian debt crisis will have more wide-reaching effects than those of periphery countries such as Greece, Portugal and Ireland is due to the high degree of inter-connectivity between the Italian financial institutions and the rest of the eurozone’s financial systems.
Turner told the committee: “You would be absolutely right to focus on the fact that within the present stresses on the eurozone, Italy is the most concerning simply because of the sheer size of its public debt relative to GDP in absolute terms.”
According to the International Monetary Fund, Italy’s public debt is more than 120% of GDP and with Italy’s debt continuing to grow the country’s economic state has drawn increasing scrutiny.

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