While it might seem that the announcement of the carbon tax had something to do with the loss of $24 billion from the Australian stock market last Tuesday, this is not the case.

Uncertainty surrounding Greece’s economic woes and concerns that Italy and Spain are heading down the same path is the main reason for this latest downturn which saw the S&P/ASX 200 approaching the June trough at 4451.70, having fallen 3.4 per cent so far this week. According to traders, the eurozone statement on the future of the troubled Mediterranean economies failed to halt speculation that Greece will default and that Italy and Spain would come under further selling pressure.

The prevailing fear amongst Australian traders in the local market is that Italy may be too big to bail out. Greece is viewed as one small European country in trouble; Italy is Europe’s third largest economy and if it ends up like Greece, the negative effect on Australian banks and their ability to borrow in the global financial markets will be almost immediate. Underlining these fears is that while US banks are minimally exposed to Greece’s debt, the same does not apply in regards to Italy’s debt. There is good news coming Australia’s way, at least for mortgage holders and other borrowers.

In the face of the international market turmoil, J.P. Morgan predicts the Reserve Bank will have to hold off on any interest rate rises until November 2011.