Italy and Spain need a complete rescue programs because of high levels of government debt and the poor condition of their banks, said Sean Egan, president of Egan-Jones, an independent rating agency.
Both sides will seek international assistance to six months, he predicts.
The poor condition of banks is usually not accompanied by sound government finances as government and banking sectors are interrelated,
This is the case with most countries like USA, UK, Switzerland and Ireland. Spain and Italy, of course, are no exception.
“It makes no sense to divide the credit ratings of banks from these governments, because too often they have to be mutually supportive. This happened in Italy and Spain, “he says.
“We think Spain will ask for 100 billion more than those they were already promised. Meanwhile, Italy will also seek assistance over the next six months. ”
On Tuesday, the yield on Spanish government debt reached a record of the history of the euro area levels.
Debt burden of Italy, 120% of gross domestic product (GDP) is the second largest in Europe, according to the International Monetary Fund (IMF).
“If you look, you see that the combined debt burden of European countries is quite high,” says Egan. “Until now we had the assumption that Germany would be able to cope with the situation. This assumption, however, may need to be reviewed. “