Does Italy’s Economic Crisis Affect Your Investment Strategy?


June 12 2018

Since the beginning of the decade, problems in Europe have occasionally drifted across the Atlantic. If it’s not Greece, it’s Portugal. If not Portugal, it might be Italy or Spain, and if not Italy or Spain, Brexit briefly created turbulence in 2016.

More recently cracks in the European financial system have taken a backseat to firmer growth on the continent, but problems are simmering just below the surface in the form of an economic crisis in Italy. Enter the dysfunctional nature of Italian politics and the two anti-establishment parties that took top honors in an early March election. A coalition was eventually formed between the two groups, but the president of Italy rejected a finance minister who has expressed doubt about the euro, which unites much of Europe.

How does this affect your investment strategy all the way across the Atlantic? Concerns the government might ditch the common currency led to a massive spike in Italy bond yields and a global sell-off in stocks the day after the Memorial Day weekend. We could see new twists and turns, but for now cooler heads have prevailed. Yields came off highs as government officials salvaged the coalition and staved off new elections later this year. My synopsis is simply a thumbnail sketch of events, but you may be asking, “Why the overview of what is only the latest in decades of dysfunctional Italian politics? Why should I care?”

First, it’s a reminder that Europe’s ongoing financial problems haven’t been solved, and what happens during this Italian economic crisis can potentially trigger uncertainty among U.S. investors…at least temporarily.

Should you be concerned?

Italians aren’t clamoring to get rid of the euro. If it were to happen, it would have enormous consequences for Italy, which would then reverberate throughout Europe. We’d likely see a run on Italian banks, as citizens moved cash to safer shores. The collapse of Italian banks would roil the European financial system, and its impact would likely be felt around the globe.

Yes, we are interconnected today. But odds of a “Quitaly” or “Italexit”– financial commentators are once again trying to coin a new term–remain low. Yet now it’s on the radar.

If nothing else, the drama over the economic crisis in Italy is simply a reminder that Europe hasn’t solved its financial problems and there is a chance these problems could affect American’s investment strategies..

I hope you’ve found this review to be educational and helpful. The information contained herein is based on sources and data believed reliable but is not guaranteed. This is not an offer to buy or sell securities. Past performance does not guarantee future results. If you have any concerns or questions, please feel free to reach out to me. That’s what I’m here for.