Don't Expect China to Bailout Europe

Just last week the Financial Times was reporting: Italy turns to China for help in debt crisis:

Italy’s centre-right government is turning to cash-rich China in the hope that Beijing will help rescue it from financial crisis by making “significant” purchases of Italian bonds and investments in strategic companies.

Yesterday, Reuters reported: S&P cuts Italy ratings one notch, outlook negative:

Sept 20 (Reuters) - Standard and Poor's downgraded its unsolicited ratings on Italy by one notch to A/A-1 and kept its outlook on negative, a major surprise that threatens to add to concerns of contagion in the debt-stressed euro zone.

It seems odd to me that Third World China would be bailing out First World Italy, but if they were close to a deal, the ratings cut on Italy gives China an excuse to walk away.

Related articles

• S&P downgrades Italy one notch to A (marketwatch.com)
• S&P Downgrades Italy's Credit Rating (abcnews.go.com)
• China as economic savior? (geneveith.com)

Italy Teeters on the Edge

The Atlantic: Euro in Crisis: Is the Italian Domino Falling?

If Italy goes, it's not clear that the rest of Europe can save them.  In the FT, Neil Dennis says people are talking about doubling the euro bailout fund to €1.5 trillion--or about three times the size of TARP.  And you may have noticed that the bailout fund has not actually stopped Greece's descent into debt madness.

Default looks more likely in the case of Greece. If a default there leads to large quantities of paper assets vanishing as they're written off, it becomes more likely that Italy and other European countries will follow suit. What might that look like?

Related articles

• Debtmaggedon Arrives in Parts of Europe (rebootcongress.blogspot.com)
• Italy races to forefront of Europe debt crisis (theglobeandmail.com)
• Is Italy Next? (thedailybeast.com)