Ft: Italy and not Spain will be the decisive battlefield for the fate of the euro

“Some think that the final battle in defense of the euro is played out in Spain. We are not of this opinion: the decisive battle for the rescue or the ruin of the single currency will be played in Italy. This is the next battlefield”. This is what we read in the commentary, edited by Professor Edward Altamn of Stern University and Maurizio Esentato of Classis Capital, published at midday in the electronic edition of the Financial Times. An opinion that causes a sensation and which seems destined to give vent to speculation even if contradicted by the president of the Eurogroup, Juncker. In summary, here are the arguments of Professor Altman, who has applied, so far with some success, the “Altman Z score” index, created to measure the state of health of corporate issues to a country's sovereign debt. “Our model – writes the couple – based on fundamentals, market performance and the resilience of the economy of nine European countries and the USA has shown itself to be reliable for two and a half years now”. And here is the answer. Italy, despite some well-known handicaps (stagnant economy, high public debt, elderly population and political uncertainty) relies on some non-negligible strengths: robust private consumption, solid companies and, no less important, the fact that 65 per percent of the debt is in domestic hands. Furthermore, one cannot help but notice the solidity of SMEs, the appeal of tourism or of Made in Italy. But despite an indisputable improvement compared to two years ago, Italian companies are among the most vulnerable in terms of capital solidity. This means that, faced with a new, heavy stock market crash, "our country debt report card will signal a red alert" with immediate effects on the public debt and the cost of credit insurance. Even today, the authors point out, despite the low level of interest rates, the interest burden represents 4,8 per cent of GDP, lower only than the figure for Greece (6,7), the higher than that of the United States (2,9) than to Portugal itself (4,2). So far, the authors conclude, the probability of an Italian default, as measured by the CDS, remains under control (13,4% against 9% a month ago) despite Moody's warning. But it's only a matter of time, argues Professor Altman.