Italy’s failure to form a government is taking a toll on the Eurozone’s economy. Investors nervous at the uncertainty have rushed to invest in U.S. treasury debt instruments, which in turn have sent the USD to its 10 month high against the euro.
As per a senior official from the U.S. Treasury, Washington believes Italy will be better off being in the Eurozone and that it would be best, for Italy, to work out its issues with the countries in the Eurozone rather than bring about significant changes to the bloc.
The political and market turmoil that has engulfed Italy has emerged as a key point of discussion for the G7 leaders who are set to meet this week.
“It would be better if they were to work things out within the euro zone without making significant changes there, and certainly the Italians have the opportunity to do that,” said the official from the U.S. Treasury.
Italy is the third largest economy in the Eurozone. The country suffered its biggest market sell-off in years after it failed to form a government sparking fears and worries of a new election that could see euro-skeptics gaining the lead, thus casting doubts on Italy’s future in the European Union.
The Italian turmoil effected the shares of U.S. banks and caused a sell-off of euro assets with investors rushing into the safety of the U.S. Treasury debt, thus sending the greenback to its 10 month high against the euro.
It is unclear who will be representing Italy in the G7 central bank governors’ and finance ministers meeting scheduled to take place on Thursday, Friday and Saturday in Whistler, Canada.