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European debt Crisis: Who’s next?

|Includes: Camden National Corp. (CAC), DAX-OLD

After EU leaders found a final deal to the Greece debt crisis, focus has now shifted to Italy as the nation’s debt has reached alarming level and Prime Minister Silvio Berlusconi is expected to resign after 2012 budget approval.

The stock markets have now focused attention on Italy debt crisis. Global indexes have been down lately while rallying on good news on debt crisis.  European stocks and indexes were down in early Thursday’s market open with Stoxx Europe 600 index, German DAX 30 index, French CAC 40 index, FTSE 100 index and Italy FTSE MIB index all falling between -0.6% and -1.7% as focus on Italy heightened.  US and Asia stock markets showed a similar trend.

Italy is now next in line to a possible debt default after Greece. Italy’s debt stands at 1.9 trillion EUR ($2.6 trillion) and exceeds that of Greece, Spain, Portugal and Ireland combined. Italy is the world’s third-largest bond market and the world’s eighth-biggest economy. It is the third biggest economy within the Europe. Italy’s default would be of greater consequences not only for the euro zone and EU but also for the global economy.

Greece debt crisis is a forgone case and updates are expected on the formation of a unity government with a new Prime Minister to lead the implementation of the bailout terms. However as investor take relieve from the Greece debt crisis, other EU debt threat members take focus.

Italian government bonds have reached the 7% interest rate threshold considered to be the point of no “return” and hiking interest rates.  Investors are more than worried of the government’s ability to honor its debt obligations. Italy has long been put on a rating watch and already downgraded by Moody’s Investor Service and Fitch Ratings.

The euro zone is put up to another challenge and this time the whole EU existence is called into question. EU leaders during the Greece bailout meeting agreed to expand the European Financial Stability Fund (EFSF) to $1.4 trillion (1 trillion EUR) but as Italian government debt surges due to hiking interest rates, doubts are raised to how EU leaders would react to this situation.

The feared risk of contagion is now set in place. As Italy debt crisis unfolds, other EU debt threat members would be of interest to investors and to the financial markets. Are we to contemplate on the on collapse of the euro zone?

The markets are volatile and this is the right moment for trading. Investors should consider ETFs based on major European indexes such as Stoxx Europe 600 index, German DAX 30 index, French CAC 40 index, FTSE 100 index and Italy FTSE MIB index.  A bet against EUR/USD would reap good investment.