On Monday speculation that the International Monetary Fund (IMF) was preparing a bailout package for Italy, Asian shares rose up to a considerable extent .The Nikkei 225 index rose 1.7%, South Korea’s Kospi gained 2% and Australia’s ASX 200 added 1.7%.Considering that this was after the Italian newspaper, La Stampa, reported that the IMF was preparing a 600bn euro ($794bn; £515bn) loan as a part of bailout package for Italy.
However, the concerns regarding about Italy’s ability to pay back its debts are rising. Concerns about the outcome of the Italian debt crisis have resulted in huge volatility in the global stock markets as the Italian government’s debt stands at 118% of the gross domestic product (GDP).
The annual economic growth rate of Italy over the past 15 years has been just 0.75%, which is much lower than the rate of interest it pays on its debts. Due to enormous debt levels and slow rate of growth, Italy may find it really tough to pay back its debt and to raise further cash from the markets which is so much needed by it right now due to its poor economic condition.
ON Friday, the latest bond auction saw the interest rates hit a record high.
The rate of interest for the new debts due to be repaid in six months rose to 6.504%, compared with 3.535% in the last comparable sale on 26 October, while the rate for two-year borrowing hit 7.814%, up from 4.628% last time.
According to the report in La Stampa, the IMF loan would be made available at a rate of between 4% to 5% bringing down Italy’s borrowing cost. However, the IMF deal is expected to help ease the burden on the Italian government.
The factor which has renewed the confidence among Asian investors has been the retail sales which was much better than expected during the Thanksgiving weekend in the United States. According to the National Retail Federation, sales during the holiday weekend climbed 16% to a record $52.4bn.This is good news as Asian exporters actually rely heavily on demand from the US and Europe for their growth. The strong numbers resulted in shares of major electronics makers surging on the Kospi index.