PARIS (MNI) – The ongoing Eurozone debt crisis is “the principal
risk factor for the world economy,” and the longer it continues the
darker the picture becomes, the Bank of Italy said Wednesday, as leaders
of the G20 prepared to meet in Cannes, France.

For starters, a dragged-out crisis could hit bank lending, which
would be an additional weight on the Eurozone economy at a time when it
is already slowing sharply, the Italian central bank said in its latest
Financial Stability Report.

“In the short term, the supply of financing from the Eurosystem
allows banks to face the illiquidity of the wholesale funding market,”
the bank noted. However, “a prolongation of the tensions could provoke a
contraction of balance sheets and a hardening in the conditions of
credit supply.”

The report was clearly drafted before the recent exacerbation of
tensions caused by the announcement Monday by Greek Prime Minister
George Papandreou that he would submit last week’s bailout deal to a
popular referendum.

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