Italy and Spain, which account for more than a quarter of the euro-area economy, are heading for sovereign bailouts in the next 12 months that will send shockwaves through the global economy, Fidelity Investments’s Jamie Stuttard said.
Both sovereigns will likely stumble over debt auctions in the next year, forcing European authorities to find official funding for them to hold the single-currency area together, Stuttard, Fidelity’s head of international bond portfolio management in London, said in a telephone interview on June 19.
Southern Europe’s two major economies have 2.8 trillion euros ($3.6 trillion) of government debt, four times the total of Greece, Portugal and Ireland, threatening to overwhelm Europe’s crisis defenses. Backstopping them may undermine even Germany’s creditworthiness unless officials allow inflation to accelerate to reduce the real value of their borrowing or the currency weakens boosting exports, Stuttard said.
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