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Italy's Global Market Impact


Italy has had its fair share of political crises. But this week, turmoil there rattled financial markets around the world. Stock prices took a nosedive Tuesday before regaining ground yesterday. But could there be more volatility ahead? Let's ask Philip Suttle. He was head of global currency research for JPMorgan, and he joins us in our studios. Thanks so much for coming in this morning.

PHILIP SUTTLE: Good morning, Rachel.

MARTIN: So granted, Italy is the third-biggest country in the eurozone, third biggest economy in the EU. But still, how were its political problems able to spook markets so much?

SUTTLE: Well, what we're really looking at here is another one of these problems related to the issue of the euro. Italy is now the poster child for the country that doesn't work within the eurozone. For a number of years, the focus was on Greece. Greece had many more difficult problems. It was a really big challenge. But now attention has shifted to Italy. And the economic difficulties there translated into a big political problem. So we now have a populist government looming in Italy.

MARTIN: A populist government that has suggested - at least by extension of one person who has been floated to be part of the government - that Italy should pull out of the eurozone.

SUTTLE: Well, to be fair, none of the people who are likely to take over are explicitly saying we should pull out. It's just not clear what they're saying. What they're really saying is we want to do things to gin up growth. We need to do things to gin up growth. And it's hard to see how they do that while keeping within the eurozone rules. So we seem to be heading for some kind of collision here through the summer months.

MARTIN: Walk us through why this matters if you're a consumer in the U.S., an investor in the U.S.

SUTTLE: Well, I think the biggest issue is it affects financial markets and financial volatility. So most of us, in some way or another, have some exposure to the stock market. As you mentioned earlier, as we saw earlier in this week, it had a lot of volatility - first down, then back up - from turmoil in Italian and broader European markets. So this - there's, I think, a real sense here in which we could see the financial markets globally being affected by such a big country as Italy having problems.

Of course, the other channel is through the exchange rate. The dollar's gone up by about 6 percent against the euro since these difficulties have begun to unfold. So that not only makes imports from Europe cheaper and holidays in Europe cheaper but it also affects companies in the U.S. doing business with European competition.

MARTIN: The Federal Reserve here in the U.S. has been raising interest rates rather steadily. If there is more political turmoil in Italy and in Europe more broadly, how could it affect how the Fed decides to move forward?

SUTTLE: Well, it's clearly going to - it's caught the Fed's attention, I think it's fair to say. The Fed will tighten in June. I think everyone accepts that. But the next move, which everyone thought would come in September, I think, now looks a little more in question given the potential for market volatility through the summer months as this turmoil plays out.

MARTIN: All right. Philip Suttle - he was the head of global currency research for JPMorgan, talking about the political crises in Italy and how it's been affecting financial markets around the world.

Mr. Suttle, thanks so much.

SUTTLE: Thanks a lot. Transcript provided by NPR, Copyright NPR.