Tito's Blog

Two Scary Thoughts On #itadefault

At 500bps, CDS on Italian public debt implies an annual probability of default of 6.8%. Compounded over 5 years, that would be a 30% chance of default in the next 5 years.

We all know what the track record of the market is in predicting large defaults (Lehman, Iceland, Dubai, MF Global, Greece).

If the Italian government decided to suddenly appropriate from its citizens bank accounts (something that was done in 1992, and is now officially denied) for example an average €1000 per person, infants included, that would bring €60 billion.

That would be enough to cover 8-10 weeks of public debt refinancing, or to reduce debt/GDP ratio from 120% to 116%. You tell me if that’s enough to calm the markets.