NEW YORK ( TheStreet) -- Italy has become the new focus of euro skeptics as pessimism over Europe grows.
Many investors were focused on the Spanish housing and banking situation, expecting it would be the source of financial turbulence for the currency union, when Greece stepped into the picture and seized global attention.
Over the course of a month, the euro fell from $1.45 to $1.35, but the decline has slowed recently. Greece has until March 16 to come up with a plan to cut its deficit, and this has calmed the markets for the moment.
However, the pause in activity didn't turn attention back to Spain; instead, investors have taken a deeper look at Italy. At the national level, and similar to Greece, Italy used currency swaps to help it enter into the common currency. Although Italy is not in the same fiscal situation as Greece, the parallel is still a disconcerting one.Italy's municipal governments also used derivatives. Earlier this month, the Italian government seized assets of Bank of America (BAC) and Dexia SA as part of an investigation into derivatives contracts within one municipality. All told, 519 municipalities have used derivatives contracts that have resulted in nearly a billion euros in losses. The amount isn't the concern here, but rather the widespread use of derivatives, which for obvious reasons carry a negative connotation with investors. On top of these concerns, this weekend, Columbia economics professor Robert Mundell, widely credited as laying the intellectual groundwork for the creation of a common currency, said Italy is the greatest threat to the euro. Italy has about 25% of eurozone debt, several times larger than Greece's share, and a crisis there would be several times larger than the crisis in Greece.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV