EuroZone Crisis Update: Italy In The Crosshairs

Italy is indebted to the tune of 118% of its GDP. All eyes have been on Greece in recent months, however Italy poses a much bigger threat than Greece to the financial stability of the Eurozone.

In 2010, Italy’s GDP was reported to be € 1.54 Trillion, this places it debt at a level that is higher than most of the GDP’s of the Eurozone countries with the exception of regional economic juggernauts France and Germany.

Italy’s debt levels are unsustainable and many market insiders comprehend that the country’s debt was a key reason for the creation of the European Financial Stability Facility (EFSF), a fund created to bailout Eurozone countries with debt problems. Only recently, European leaders agreed to expand the EFSF to € 1 Trillion.

As Greece appears to be nearing a political resolution of its sovereign debt crisis, Italy has become the focus for international market analysts and participants.

In coming days, the spotlight will increasingly shine intensively on Italy as the country’s debt curves have begun to spiral out of control, following the same trend that other troubled Eurozone nations saw their sovereign debt yields tread before previous crises hit.

According to Bloomberg, “Italy’s 10-year notes traded above 5.5 percent for 40 days before breaching the 6 percent mark on Oct. 28 and reaching 6.63 percent today. The bailed-out nations followed a similar trajectory, consistently averaging above 6 percent for about a month before crossing the 6.5 percent barrier. After that, it took an average of 16 days for yields to pass the unsustainable 7 percent level.”

The Italian Prime Minister, Silvio Berlusconi is being pressured by different groups to resign and step down from power. The leadership style of the country’s premier is counted as a major contributor to the current economic crisis emanating out of Rome.

The embattled prime minister is not expected to go without a fight. His reputation for being set in his ways precede him, also he usually is able to narrowly escape any political attempts to remove him.

Earlier today rumors of his resignation hit the news wire, yet thePrime Minister in his usual style of media domination, announced these as false, on his Facebook page.
Interestingly, news of his resignation sent stock and sovereign bond markets up, and his rebuffal of tose reports sent the markets tumbling back down.

It appears there is more investor confidence in a situation that does not include Berlusconi.

Businessnews continues to monitor the situation.