The impending economic collapse about to occur in Greece has been responsible for the sharp decline in European stock markets. In an effort to redirect the world’s attention, the Italian economic situation became the main news story today. Whether Greece or Italy collapses first is irrelevant: we must focus on the end result and not fall for misdirection.
One of the reasons that the US stock market rallied at the end of today (September 12, 2011) was the news of a Chinese bailout of Italy from the Financial Times. While the impact of this news will be short-lived, an earlier article from Reuters contradicted this information.
Who to believe? I believe the Reuters’ article for one simple reason. They made the effort to contact a member of the Italian finance department to verify whether a Chinese bailout was imminent. He went on the record to deny the bailout as shown below. The other article speculated about a bailout based on a meeting with a Chinese investment company.
However, the Greek financial situation that was responsible for the current financial markets’ distress was removed from the public eye for another day.
Italy’s centre-right government is turning to cash-rich China in the hope that Beijing will help rescue it from financial crisis by making “significant” purchases of Italian bonds and investments in strategic companies.
According to Italian officials, Lou Jiwei, chairman of China Investment Corp, one of the world’s largest sovereign wealth funds, led a delegation to Rome last week for talks with Giulio Tremonti, finance minister, and Italy’s Cassa Depositi e Prestiti, a state-controlled entity that has established an Italian Strategic Fund open to foreign investors.
Italian Economy Minister Giulio Tremonti said on Thursday that Asian investors are reluctant to buy Italian bondsbecause it sees they are not being bought by the European Central Bank.
Speaking at a news conference, Tremonti also said it would be desirable for the central bank to follow the lead of the Japanese and Swiss central banks in taking expansionary steps to tackly the euro zone’s crisis.