We should not be complacent about the risks a recession could pose to advanced economies Are brewing exchange rate and debt crises in Argentina and Turkey localised events without broader implications? Or are they early warning signs of deeper fragilities in bloated global debt markets that are being exposed as the US Federal Reserve continues to normalise interest rates? Rising interest rates could test stability in some advanced economies as well, especially in Italy, where voters, particularly in the less developed south, have opted decisively for a disruptive populist government. With an economy 10 times the size of Greece, a default in Italy would blow up the eurozone. Indeed, the populist coalition government that has now taken power has hinted that it wants write-offs for some of its under-the-table debts (not included in Italy’s official public debt of more than 130% of GDP) to the euro system through the European Central Bank. Continue reading...
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