News analysis: Italy's exposure to Greek debt limited, but collaborative solution needed

Italy's direct exposure to the Greek debt crisis is limited, but future developments could negatively affect Italian sovereign bonds, as the next most vulnerable in the euro area, according to Italian experts.

"Italy's public sector owns around 40 billion euros (45 billion U.S. dollars) of Greek public bonds, but they are already part of our public debt. So the short term risk is related to a possible reduction of interest payments only," Stefania Tomasini, head of analysis at Prometeia, a think tank based in Bologna, told Xinhua.

"The private sector exposure is low, especially for banks, which own 0.8 billion euros of the debt. The main risks can arise over the next six months, when several steps have to be fulfilled. The road can be bumpy, negatively affecting Italian sovereign bonds, as the (next) most vulnerable into the euro area," she said.

Greece is mired in more than 300 billion euros of debt, and the new government of Prime Minister Alexis Tsipras is struggling to put in place a financial plan to renegotiate the austerity conditions attached to an existing bailout program which ends on February 28.

Tsipras and his finance minister Yanis Varoufakis met their Italian counterparts in Rome last week as part of their tour of European capitals.

"Italian Prime Minister Matteo Renzi and Economy Minister Pier Carlo Padoan extended a warm welcome to the Greek leaders but were not too explicit in supporting their extreme views," Tomasini noted.

She said the Italian government would cooperate with its Greek colleagues at the European level in order to exploit any room for flexibility and support a fair solution of Greek problems, but without any explicit fight or risk of rupture with the European Central Bank (ECB).

In her view, a Grexit (Greek exit from the eurozone) or a unilateral default is becoming less likely.

"Nevertheless, medium-term risks persist if Greece fails to tackle the numerous structural problems that affect the Greek economy, namely corruption, fiscal evasion and low productivity of both public and private sector," Tomasini said.

She felt Greece needed a deal to postpone the repayment of the debt in order to bring the economy towards a sustainable path.

Fedele De Novellis, senior economist at REF Ricerche, an independent consultancy firm based in Milan, said while Italy does not have a big exposure to Greek debt, it could risk contagion if markets consider the possibility of a Grexit.

"In that case, markets would also start assessing the probability of other exits, thus raising the interest rates of peripheral countries of the euro area, including Italy," he told Xinhua.

Thanks to the ECB's expansionary policy, De Novellis said, interest rates have significantly lowered in recent times. "Actually, we believe the Greek debt will not affect other countries, but it is time for the European economic policy to clearly address the problem of Greece and possible similar situations," he said.

In his view, Italy has everything to gain from a sustainable solution of the Greek debt crisis.

"Therefore to some extent we have to try to be an ally of Greece," De Novellis stressed. "Facing the difficulties of single member states in a collaborative way is convenient for Italy, and the Italian government did well having a positive attitude towards Greece," he said. (1 euro = 1.13 U.S. dollars) Endit