Despite Italy's debt problems, it is "too big to bail and too big to fail", says Perpetual head of investment markets research Matthew Sherwood.
Speaking to InvestorDaily, Mr Sherwood said that Italy’s debt will continue to grow unless essential structural and political reform is implemented.
Italy now has, as a percentage point of gross domestic product, more debt than Greece had in 2010, amounting to 131 per cent of GDP, he said.
“It is an economy that has only grown in one of the last 13 quarters and has an inflation rate of just about zero," Mr Sherwood said.
“Italy can’t grow its way out of its debt problems; it can’t inflate its way out.
“That really only leaves default, [but] it is too big to bail and too big to fail,” he said.
The nation is currently the third-largest bond market behind the US and Japan.
According to Mr Sherwood, the nation has too much debt to buy and a far too small portion of the European Central Bank QE program – around 20 per cent – to achieve any effective reduction in debt.
“In the end Italy’s debt is going to continue to grow,” he said.
Italian structural problems relate to the cost of doing business and the subsequent inability to sign lucrative export contracts, Mr Sherwood argued.
The dip in Italian competitiveness impinges on its ability to achieve sustainable growth and debt reduction. Namely, after converting to the euro, the nation became 42 per cent more expensive than its German counterpart.
However, Mr Sherwood claimed that Italy’s problems are also related to the flawed European system.
“The European concept was ill-designed from the first day; there was no banking union, no fiscal union, all there was, was currency union.
“The problems in Europe are now not only in the periphery, the problems are deep in the core.
“In the end, Europe is the weakest link in the global chain,” he claimed.