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Montevideo, June 25th 2019 - 20:17 UTC

 

 

German government advisor fears another European financial crisis: points to Italy

Monday, May 20th 2019 - 09:15 UTC
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Dr Feld said the banking system in Italy “is not as safe as we might hope for. There is the potential for contagion, in particular, from the Italian banking system” Dr Feld said the banking system in Italy “is not as safe as we might hope for. There is the potential for contagion, in particular, from the Italian banking system”

A senior adviser to the German government fears another European financial crisis could be brewing. Dr. Lars Feld, one of the German Council of Economic Experts, was one of the first last year to warn of a slowdown in Europe's largest economy.

The German government expects expansion of just 0.5% this year, down from 1.8% just a few months ago as manufacturing struggles with a number of challenges. Now Dr Feld has told the BBC he is looking further afield, in particular to Italy.

The country is struggling to stay out of recession and grappling with higher government debt and a banking crisis - which Dr Feld thinks could leave it vulnerable.

The spending and tax spending plans of the Italian government there means its deficit and debt are ballooning, and set to breach rules set by the European Commission, further undermining the country's financial credibility.

The Euro skeptic government has over £2 trillion worth of debts. Concerns about those could put further pressure on the financial system.

Dr Feld said that: “the banking system in Italy is not as safe as we might hope for. There is the potential for contagion, in particular, from the Italian banking system to other banking systems.

”And in the first place from the Italian government to the entire banking system.“ He concludes that ”this might look like a new euro crisis”. Seven Italian lenders have already required bailing out in the last three years.

Dr Feld also remains wary of risks to the German economy. Tougher emissions standards hit the sales of an underprepared car industry in the second half of last year . Meanwhile, a drought caused severe disruption to the transport of goods on the Rhine.

Those impediments were temporary. But manufacturing - which accounts for about a fifth or Germany's annual income - continues to be weighed down by slower demand from China, and disruption caused by the US-China trade war.

Beyond those challenges, Germany faces a longer-term challenge - how to stay ahead of the pack in the face of intense global competition.

Categories: Economy, International.

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