Spain, Italy won't need bailouts, economists say

London Spain and Italy won't need to resort to international bailouts as they battle through their debt crises, although their economic ills may drag the Eurozone's recession into mid-year, according to economists.

Market fears over the finances of both countries have intensified over the last week, prompting speculation that Spain or Italy will soon go the way of Portugal, Greece and Ireland by seeking outside help.

But 29 economists polled in the last week were largely sceptical that Italy and Spain, the Euro-zone's third and fourth largest economies, will be forced into bailouts that would amount to hundreds of billions of euros.

The survey showed a median 25 per cent chance that Spain will end up doing so, and 13 per cent for Italy.

Reasons

Respondents cited a number of reasons they are hopeful bailouts won't be needed, including that governments and authorities are gradually becoming better equipped to deal with the crisis. But some thought there would be no bailout because Italy and Spain are simply too big.

"Having had the experience of Greece and other countries, the Spanish government is being quite nimble in taking early action," said Alan Clarke, UK and Eurozone economist at Scotiabank.

"They know how bad things could get, so I think they'll be more nimble, as will the European Central Bank."

However, Clarke added that rescue facilities on the scale needed to bail out countries as large as Italy and Spain do not exist at present.

Lending ceiling

The Eurozone last month raised the combined lending ceiling for its two bailout funds to €700 billion (Dh3 trillion), depending on what is counted. And the International Monetary Fund meets this weekend to boost its crisis-fighting firepower, having said on Wednesday it had raised $320 billion so far.

"Putting that firebreak in place should help at least calm the pressure that's been on the Spanish and Italian bond market in recent days," said Victoria Cadman, economist at Investec.

"We also think some of the fears over the need for the Spanish government to turn to international authorities to recapitalise its banks are overdone."

Madrid and Rome have committed to harsh austerity measures they say will restore confidence about their finances, but as a result both face a steep economic decline that will weigh heavily on the wider Eurozone economy.