Europe is worried that Italy could be drawn into the debt crisis.

07/11/2011 - 06:34

11 July 2011 Eurozone ministers meeting to discuss debt concerns Herman Van Rompuy's spokesman said the meeting was simply to aid co-ordination Senior European Union officials are meeting later to discuss the eurozone's continuing debt woes. The talks in Brussels were arranged over the weekend by European Council president Herman Van Rompuy. His spokesman denied that it was a crisis meeting. Reports say the meeting was organised because of worries that Italy could be drawn into the debt crisis. It will be followed by a planned meeting of eurozone finance ministers. The finance ministers are due to discuss a second financial support package for Greece. Click to play What went wrong in the eurozone? Greece's current bail-out funds, agreed last year, total 110bn euros ($157bn; £98bn), but the government requires more funds to prevent it defaulting on its debt payments in the future. Widening gap Mr Rompuy's spokesman said the talks with fellow European Union officials were arranged to "co-ordinate positions as we have done in the past". Also due to attend are the head of eurozone finance ministers, Jean-Claude Juncker, European Central Bank president Jean-Claude Trichet, European Commission President Jose Manuel Barroso and EU Economics Affairs Commissioner Olli Rehn. On Friday, shares in Italy's largest bank, Unicredit Spa, fell 7.9%, and the main Italian share index dropped 3.5% on fears over Italy's financial situation. The yield on Italian bonds also rose, as investors became less willing to purchase them. The spread of Italy's 10-year government bond yield over the German equivalent hit 2.45% on Friday, its highest since the euro was introduced. As a result, the yield on Italian bonds reached 5.28%, which analysts say is close to levels that could put pressure on Italy's public finances.


13 July 2011  IMF urges Italy to enforce spending cuts   Milan Stock ExchangeItalian shares had a volatile day of trading on Tuesday Continue reading the main story



The International Monetary Fund (IMF) has asked Italy to ensure "decisive implementation" of spending cuts to reduce the country's debt. Its comments come as concerns continue that Italy may be the next country to be affected by the debt crisis in the eurozone. The Italian government is now moving ahead with plans for an austerity budget. The IMF said Rome may be being too optimistic about economic growth. Deficit target "[IMF] directors stressed that decisive implementation of the package is key and a number of them felt that more front-loaded spending measures would have a positive effect on market sentiments," said the IMF report. It added that Italy's plans on tax reform lacked detail. Concern about Italy's finances saw its main share index, the FTSE MIB, fall as much as 4% at one point on Tuesday, before recovering to rise 1.2%. Italy's Finance Minister, Giulio Tremonti, is proposing 48bn euros ($67bn; £42bn) in budget cuts over three years, and aims to cut the deficit to zero by 2014 from this year's 3.9% of gross domestic product. He left a meeting of European Union finance ministers in Brussels early on Tuesday so he could continue to work on the austerity plans. In a sign that investors are worried about Italy's financial situation, the yield on Italian 10-year bonds on Tuesday increased to 5.8% from 5.6% on Monday. Analysts say this is close to levels at which the Italian government will have problems servicing its debts. As concerns about the debt crisis in the eurozone continue, the Irish Republic had its debt-rating cut to junk status by ratings agency Moody's on Tuesday. Moody's said there was a "growing possibility" that the country would need a second bail-out from the European Union and the IMF. The Irish Republic is one of three eurozone countries that have so far needed such financial support, the other two being Greece and Portugal.

So  who on here wants the euro to fail with Italy pulling out? I'll kick off and only my opinion but speaking through my pocket. Anyone with a house here will see a fall in its sterling or dollar value of something in the region of 30%-40% overnight. Anyone with a euro mortgage will see a similar increase in the principal owing. (Going to make great tabloid-Economist articles). Anyone looking to buy a house, why do this now? Wait. Buy at 30%-40% lower "new lire" prices. Should kick start the property market but not good for estate agents now. I could go on, but I think thats its very important for the ECB to really get their act together now (assuming that they want the euro to survive). First step would to bid 10% over the current market price for the bonds of Greece, Ireland and Portugal. Would really squeeze buyers of cds and limit the supply of deliverable bonds forcing shorts to cover and driving down bond yields.

But would you buy anything fixed interest with financial chaos looming? If the euro falls apart, expect rife inflation and a need for massive interest rate rises in order to stabilise and get anyone to invest in your new currency or your economy. Then even a 10% discount on bonds wuld look silly, never mind a 10% premium.  I'm not sure the ECB is in for that kind of a gamble, nor am I sure I would want them to be. I don't claim it's necessarily the most enlightened view, but it's all mine wink. Terry

  Italian debt crisis: Your stories As the Italian government moves forward with its plans for an austerity budget, the International Monetary Fund has asked the country to ensure spending cuts are implemented in a "decisive" way. There are concerns that Italy could be the next country to to be affected by the debt crisis spreading through the eurozone. Here, BBC News website readers explain how their daily lives have been affected by Italy's money worries. CLICK HERE 

  Italy set for senate vote on austerity budget The Italian senate is set to vote on a tough austerity budget, which proposes cuts of 48bn euros ($67bn; £42bn) over three years.   Italy wants to reduce one of the largest budget deficits in the eurozone and avoid any need for a bail-out. Correspondents say the budget is likely to be approved by the upper house, and then in the lower house on Friday. Italian PM Silvio Berlusconi has said Italy is on the front line of the eurozone's economic difficulties. The BBC's Gavin Hewitt says both the government and the opposition know that Italy is under fierce scrutiny by the markets due to its large debts. Earlier this week, the International Monetary Fund (IMF) asked Italy to ensure "decisive implementation" of spending cuts. In a report, the IMF said Italy must make efforts to reduce public debt, maintain the stability of its financial sector and introduce structural reforms to boost growth. The vote comes amid concerns that Italy may be the next country to be hit by the eurozone's debt crisis. Opposition parties have said they may vote against the measures, but that they will not mount delaying tactics, meaning the government's majority should be enough to see it through. Italy's Finance Minister Giulio Tremonti is proposing 48bn euros in budget cuts over three years, and aims to cut the deficit to zero by 2014 from this year's 3.9% of gross domestic product.

Capo Boi said: "So who on here wants the euro to fail with Italy pulling out? I'll kick off and only my opinion but speaking through my pocket. Anyone with a house here will see a fall in its sterling or dollar value of something in the region of 30%-40% overnight." I'm easily befuddled by finance and it's really too damn hot to think at all, but I'm pretty clear that the only thing that matters in property dealing is the difference between the price you can get when you sell and the cost of the property when you bought it. I happened to buy our home when Stirling was quite strong against the Euro (2006), so a 30% fall on the current supposed value would - what? - take the value of the house in Stirling back to roughly what it was five years ago? If that was so and given what has happened to UK property values in that period, I'd not be surprised to find that I could then step up from what I had in Britain if I was to sell up here and move back. I can see how, if the hypothetical New Lira was worth less than a Euro - and if house prices changed only in that the currency sign altered, but the sum remained the same - then the number of Pounds I would receive for the sale would then be less than what I might get if I sold the house today for Euros and immediately exchanged those Euros for Stirling. But that sort of property value has always seemed to me more speculative than real - a point many people with mortgages in the UK have been reminded about over the last couple of years. Obviously, if we wanted to sell our current home and buy another in Italy, the change to the New Lira would have no impact. Much more important to me than how much I might be able to get if I was to put our house on the market and sell it for New Lira is how much we will be able to buy in Italy next month when I convert my fixed Stirling income into Euros. Leaving aside the affects of inflation, I think the purchasing power of my income has fallen by roughly a third since I moved here. If there was to be a devaluation with the hypothetical New Lira set at a value against the GBP lower than the €/£ exchange rate today, we would be a net winner, at least in the short to medium term. Al

A very good post Allan. I did say "I could go on" If you have a sterling income and no euro mortgage on your house and no intention of  returning permanently to the UK then you will indeed see a big increase in your purchasing power in "new lire" as you point out. As you say you will be a "net winner" and good luck to you. I suspect, however, that you may be in a small minority of the people on this forum. Its very easy for the media and the markets to bash Italy at the moment. The Economist have been doing it for years and in my opinion with some very one sided analysis. Regardless, I suspect that many people on this or other forums have not thought through the implications on their personal finances of the euro folding. You clearly have Allan and again best wishes to you. ps you're right......its hot. 31c at 7.00am this morning here.

Except that there would only be a new lira in the event of financial meltdown, i.e Italy not being able to pay its debts in Euro. Thus it would need to pay its debts in new lire, would fall short because of the exchange rate against the euro, so would need to print more, thus adversely affecting the exchange rate, etc etc. (quantitative easing they laughingly call it these days). In other words, a valueless currency, rife inflation, zero take-up on Bonds (hence a need for tax increases) and a routing of the economic middle ground. You would need to be either very wealthy or happy to be poor. Business could then only be done in hard currency, so the economy shrinks as well, which means less and less public services. Not too good. Wasn't the old lira a bit like that though? smiley Terry

Hmmm - I'm not sure Allan is in a small minority. I think the majority of people on here either live here full time (no plans to return to the UK) or plan to in the future but I'm happy to be corrected. For us we are more interested in the GBP to EUR rate as Allan says than any gain or loss on taking our money back to the UK.

I'm not saying that EVERYONE in here is a Guardian or Economist reader (both journals we know have always, for reasons beyond me, a very strong anti Italian lobby dating back at least thirty years) however just to put a stone on some theories 1. The Euro is definitely not going to go away.2. Italy will not leave nor will it default from the Euro.3. There will be no "new lire". This does not mean that Italy does not have vast problems which it has but the frequence of the usually vitriolic attacks concerning the Euro in the British press, country in which it has been recently ventilated may have to place a 12p. to the pound tax permanently to avoid bankrupcy.. does make one think.Personally i believe that we will see the UK in the Euro within 20 years.

sebastiano, not sure about your point (3). Brown initially wanted to take £ into the euro. Blair was unconvinced...referendum and all that.... When Blair wanted to go ahead, Brown-Balls were against. (if Blair's in favour we must be against). So not sure about your 20 years if the past is anything to go by but completely agree that whatever it takes, Italy will not leave or default on its euro obligations. 10 year btp yields have rallied 40bps to 5.60% in the last two days. Not really seen in the press about this upmove in prices. Tomorrow is going to be a big day but I would'nt like to be short 5 year Italy cds.

3 August 2011 

Share this page


Silvio Berlusconi says Italy banks 'solid and solvent' COMMENTS (25)   Italian Prime Minister Silvio Berlusconi has said the country will not be drawn into the debt crisis engulfing Europe. Addressing parliament on Wednesday, he said Italy's banks were "solid and solvent" and the economy was "solid". His comments come after heavy losses on the Milan stock market and a sharp rise in yields on Italian bonds. The eurozone's third largest economy is about to introduce a 43bn-euro ($62bn; £38bn) austerity package. Mr Berlusconi said Italy had "solid economic foundations" and called the recent fall in bond yields a "crisis of faith in the international markets". Italy has so far managed to avoid sovereign debt problems, despite having one of the highest debt-to-GDP ratios in the eurozone at 120%. But the economy is twice as big as Greece, Portugal and the Irish Republic's combined, so a bailout would probably be unaffordable. Mr Berlusconi has been criticised for his silence on Italy's economic problems, amid concerns about whether the government would introduce the full austerity package. He told MPs that the government would need to approve "as soon as possible" fiscal reforms in order to have "a tax regime that is more favourable for families, workers and businesses". Mr Berlusconi also underlined the need for labour-market reforms and competition. He said the crisis "should be confronted with consistency and confidence, without bowing to the nervousness of the markets". Dominoes But Michael Hewson, an analyst at CMC Markets, doubted whether Mr Berlusconi's speech, made after European stock markets had closed, would calm investors' nerves. Continue reading the main story


image of David WilleyDavid WilleyBBC News, Rome Silvio Berlusconi quite rightly said he must not make the financial markets nervous. But it was very significant that he delayed his speech by two-and-a-half hours so that markets would be closed by the time he spoke. He said the banks were solvent and the economy was solid; that Italy was in a more favourable situation than many other European Union members. This is the sort of language he has used before. But quite frankly many Italians do not believe him. And we will have to see what the markets make of it when they re-open. Basically, the tenor of Mr Berlusconi's remarks was: "What is all the fuss about? We have a flourishing economy." Well, this is not true. Italy has almost zero growth, big productivity problems, and prospects for the future are dim because it is going to have to pay more to re-finance its very heavy public debt. So I do not think it was a very convincing speech as far as many ordinary Italians are concerned, and I do not think it is going to convince Mr Berlusconi's European partners. He told the BBC: "This is not about Italy. It is about the future of the euro. As soon as one domino falls, the markets move on to the next one. "Nor is it about Italy's banks. It's about the government's debt and the only reason the banks are involved is because of their exposure to that debt," he added. Emma Bonino, vice-president of Italy's Senate and leader of the opposition Radical Party, told the BBC: "For the first time [Mr Berlusconi] said we are facing a crisis - which is something. "But the real point is the lack of growth - and in the whole 30-minute speech he didn't announce any more measures to promote growth." Earlier in the day, European Commission President Jose Manuel Barroso described the bond markets' treatment of Italy and Spain as "a cause of deep concern". Yields on Spanish and Italian bonds have hit euro-era records this week, meaning that it would cost both countries' governments more to borrow money. The Italian 10-year bond was yielding 6.02%, while the Spanish 10-year bond was at 6.14%. A bond yield above 6% is considered unsustainable in the long run. "The upward march in Spanish and Italian bond yields is evidence of the relentlessness of the sovereign debt crisis," said Jane Foley, an analyst at Rabobank International.

I think that a great deal of what happens with the economy has a lot to do with rampant speculation by the markets. There are no more sub-primes, very little scope for making quick money and rating agents and traders opt for making big waves to get some profits. Europe needs to have our own rating agency and Asia would benefit from having one as well. We cannot have everything ruled by the American rating agencies. Where were they before the crisis began? If they are that good and knowledgeable they should have foreseen what was going on. I do not trust their opinion at all.

Today the Italian (treasury? not sure) demanded from Moody's (a debt rating agency) files about something. Now, I follow this stuff fairly assiduously - and transparency there is not. That's why I don't know what files they've comandeered. Anyway, it is compeletely irrelevant, defo fiddling while Rome burns (but only because the notion of Rome burning is rather attrative because it takes the heat off Athens or NY. I'll come clean, and say that since 2008 it has all been about hope over expectations - so I'm not going to knock the easy targets like Moodys. The whole 'scheme' of sovereign debt is clearly  (when you analyse it) Ponzi.

I don't pretend to understand it, but investors being able to 'short' a share seem to drive the shareprice(s) down, why not make this illegal ? That way, if you want to invest, you 'support' the investment rather than dragging it down, it seems to be this sort of domino (and negative) effect is happening across the stock markets of Europe ? S

In reply to by sprostoni

Well, you probably know that Italy, along with Spain and Belgium and some other European countries, did ban 'shorting' of bank shares on Thursday. This is widely regarded as a further 'kicking the can down the road' manouvre, but hey ho, it 'helped' Euro banks today. So, (aside from shorting) the Italian government considers itself sufficiently bullied that this evening (Aug 12) they have approved yet another 'emergency budget'. Most of the measures are not likely to be of interest to forum members (unless they generate significant Italian income) but there is one little provision which will certainly affect us all. Included in this 'budget' is the intention to make all national festas fall on a Monday (apart from those which "are obliged" to fall on their particular day). It's not clear which festas 'must' fall on their date - one would imagine that Christmas is in this category (!) but the silly season discussion topic is bound to revolve around whether May 1 is inviolable (the PD wil want that one!), or maybe also Jan 1. There aren't any Scots votes to be had in Italy... Anyway, this madcap scheme (no doubt based on the excuses which Mervyn King et al have made for lack of UK performance recently: "too many bank holidays") at least means that Dec 8 and June whatever (President's Day?) won't catch me by surprise again!

You know, the politicians just cannot do this, instead of pussyfooting around with woolly words, say what they mean............. Lots of people will have been living beyond their means for years. So now that the size of the problem has started hitting people between the eyes, they now say it is not 'our' fault it is the governments ! The government under Blair & Brown (in my view) spent WELL beyond their means and now the current government (it just happens to be conservative led) has to pick up the pieces. The government MUST change the benefits culture, but sadly, in trying to do this, they will likely get voted out next time, and so the spiral will continue downwards! Re the shorting........... I am delighted to see this ban in place, why on earth can it be right to drag a company DOWN to make money ?...............crackers ! S

Well, as far as 'shorting' is concerned, the markets were 'shorting' sovereign debt (in other words betting on governments not being able to honour their repayments of the principle) (not quite akin to missing a dividend payment). You have to understand that iou s issued by governments are basically a Ponzi scheme, and also you should understand that 'markets' is a polite word for casinos. IMO none of this stuff has anything to do with 'benefits'. Even the bill for those handouts doesn't compare with the PFI money.  I do agree that the so called socialist regimes presided over by Blair and Brown (and we can go back to Clinton if you want!) were (arguably) designed to make the rich richer: the other interpretation is that evil rich boys took advantage of those innocent politicians 'abroad'. As always, the powers that be shaft their errors onto the poorest in society - whether it's about conning mugs into buying stock into their pension 'pots' (what a repulsive word!) or cutting ppayments to cripples. T'was always thus!

About Italian festas: those of a non-religious nature will be forced to fall on Sunday (not Monday as I said yesterday) - but it seems Dec 8 will remain a holiday on the day on which it falls. It's the Festa of the Immacculate Conception.

I have to agree with Fillide. And I think that it is necessary to restructure the markets and the economy. And this does not mean to get rid of benefits, particularly for the poor and the needy. This only represents a small slice of the cake. What causes the real damage is speculation, greed and military expenditure. Governments should spend more on health, education, housing and welfare. Do I sound like a "red"? Well, rest assured that I am not one; however, I do think that the "rich getting richer and poor getting poorer" is evil and immoral. I do not care who is in government, providing they do a decent job. And I am all in favour of the "shorting" measures. It was about time...

I agree that we should help those that NEED (NEED !) help through no fault of their own, the problems as I see them are that there are a lot of people expecting handouts and due to this, we struggle to look after the real needy as the costs are escalating out of hand. The feral idiots who are wrecking the UK at the moment are actually costing the normal taxpaying public millions for the policing, clean up operations, hospital treatments, court costs, prison costs etc etc. S

Guardian and Economist gone a bit quiet now. (As have other forums). 10 year Italian bond yields now below 5%. Euro comfortably above $1.40. Its only a matter of time imo before the hedgies have a go at £. Why? Because (1) £ is overvalued (2) they can and (3) would suit govt. Only my opinion but I think we will see £/€ at 1.05 or below in the not too distant future (Currently 1.145). 

.....about "shorting" - it's not that big a deal. The real speculation happens in the currency futures and options markets. Not even to mention commodities. A quick read-up on how these markets work and the differences against the "stock market" is well worthwhile, and recommended. TK

In reply to by sprostoni

I'm sorry I can't point you at the vg article I read a week or so ago about how 'banning shorting' (on bank shares) is simply one of those notions which politicians think might keep the populace content. As we all know, 'there are more ways to kill a cat' and shorting bank shares is a piece of piss whatever the Eurocrats pontificate. It is not an invalid position to take that the markets are a feral casino, (even without delving into 'dark pools').

25 October 2011 Last updated at 13:00 GMT    

Italy government at risk, says Umberto Bossi Italy's government could fall because of disagreements over economic reforms, one of Silvio Berlusconi's coalition partners has warned. Northern League leader Umberto Bossi said the government was "at risk" and the country faced a "dangerous time". His party, the main coalition partner, has rejected proposals to increase the pension age to 67 years. Mr Berlusconi's EU partners are demanding concrete action by Wednesday to reassure markets. 'Dramatic time' Eurozone leaders are due to hold a summit in Brussels on Wednesday to devise a strategy to confront the area's worsening debt crisis. They are expected to agree a plan to reduce Greece's debt burden, strengthen European banks to withstand bond losses and scale up the eurozone rescue fund. At a meeting over the weekend, Mr Berlusconi was publicly reproached by French President Nicolas Sarkozy and German Chancellor Angela Merkel who said that it was vital for Italy's public debt "to be reduced in a credible manner in the coming years". Raising the retirement age is one of the key economic reforms demanded by the country's EU partners as a condition for supporting Italy's bonds. But Mr Bossi dismissed the idea, saying: "I'm not touching our pensions, which are fine, to bring up the age to 67 just to please the Germans." He has also dismissed the idea of a government of technocrats being installed to push through reforms. "The government is at risk," Mr Bossi told reporters in parliament on Tuesday. "The situation is difficult, very dangerous. This is a dramatic time," he said. As the coalition parties held separate meetings, Italian President Giorgio Napolitano said in a statement that the country must do everything to reduce the risk to government bonds by making its determination to cut public debt more credible. For the first time, Silvio Berlusconi has also raised the possibility that he might step down from the political stage after dominating Italian politics for 17 years. "I hope the conditions arise where I can leave the responsibility of the presidency to others, perhaps remaining within the party as its founding father," Mr Berlusconi is reported as saying, according to La Repubblica newspaper. "Whatever happens I will do what my party and the coalition ask of me." Italy, the third largest economy in the eurozone, needs to issue some 600bn euros (£520bn; $835bn) in bonds over the next three years to refinance maturing debt.   David Willey BBC News, Rome In Brussels over the weekend Mr Berlusconi was given an ultimatum - he was told to go back to Rome and produce a credible plan by Wednesday. He passed an austerity budget back in August but it does not seem to have convinced the market. Since then, there has been a lot of political infighting and his popularity has reached an all-time low. There is no overall plan in Italy - neither a plan A nor a plan B - and people in Brussels are getting a bit impatient. They see that he cannot deliver, which is putting him in a difficult political position at home.

  What's the matter with Italy? The country that seems to crop up more and more in the current eurozone discussions is Italy, but why should it be affected by the Greek crisis?   Greece's debt problems are already widely known, and the immediate consequences of a Greek default largely anticipated. Moreover, the size of the Greek economy is small enough that the direct damage if Greece stopped paying its debts should be quite manageable for the eurozone. Instead, the big fear is "contagion" - that a Greek default could trigger a financial catastrophe for other, much bigger economies. And Italy seems to have ousted Spain as the lead candidate for that contagion. Why is that? Prudent Italy? According to Germany's chancellor, Angela Merkel, "Italy has great economic strength, but Italy does also have a very high level of debt and that has to be reduced in a credible way in the years ahead." As with Greece, she and other eurozone leaders believe the solution is more government austerity - spending cuts and tax rises - by Rome. However, some economists might disagree with her assessment. The Italian government's debt, at 118% of GDP (annual economic output) is certainly high, even by European standards.   But dig a little deeper, and the picture changes. Unlike their counterparts in Spain or the Irish Republic, ordinary Italians have not run up huge mortgages, and generally have very little debt. That means that according to the Bank of International Settlements Italy as a country - not just a government - is not actually terribly indebted compared with other big economies such as France, Canada or the UK. Moreover, the large debts of the Italian government are nothing new. It has got by just fine with a debt ratio over 100% of its GDP ever since 1991. The main reason is because - unlike Greece - Italy is actually quite financially prudent. The government spends less on providing public services and benefits to its people than it earns in taxes, and has been doing so every year since 1992, except for the recession year of 2009. Indeed, the only reason Italy continues to borrow at all is to meet the principal and interest payments on its existing debts. Grim outlook So why is Italy in trouble now? The reason is because its economy is so weak. Italy is plagued by poor regulation, vested business interests, an ageing population, and weak investment, all of which have conspired to limit the country's ability to increase production. The country has averaged an abysmal 0.75% economic growth rate over the past 15 years. That is much lower than the rate of interest it pays on its debts. And this creates a risk that the government's debt load could grow more quickly than the Italian economy's capacity to support it. In the past, this risk has not materialised, thanks to Italy's relatively high inflation rate, which has steadily pushed up the government's tax revenues. But now the outlook is much more grim. Self-fulfilling prophecy Like other southern European economies, Italian wage levels rose too quickly during the good years, and left Italy uncompetitive versus Germany and other northern economies within the eurozone.   That lack of competitiveness is likely to mean many years of even weaker growth and low inflation, as Italian workers find their pay is frozen, or even cut, until they regain a price advantage over German workers. But lower growth and inflation suddenly make the Italian government's debt load look much less sustainable. Further government spending cuts are likely to hurt the economy even more, and - as Greece is discovering - may not even do much to improve the government's borrowing needs if they lead to a sharp rise in unemployment. That scary outlook has freaked out markets, and lenders are demanding a much higher interest rate from Italy in order to lend it the new money it needs to repay its old debts as they come due. But of course this higher cost of borrowing makes Italy's debts look even less sustainable. That means the market's loss of confidence in Italy could well end up becoming a self-fulfilling prophecy. If nobody will lend to Italy, then Italy cannot repay its debts. And if Italy cannot repay its debts, then nobody will lend to it. And if markets do panic, and switch their money out of Italian debt into "safe" German debt, Italy would need an enormous bailout that would dwarf the eurozone's current 440bn-euro rescue fund, the European Financial Stability Facility.

What is worrying everybody is the lack of affirmative action by the Italian government. The ratio of the Italian debt is 120% to GDP and it is huge. Here is an excellent article: This time, Berlusconi is in deep trouble. Germany and Italy do not trust him at all and I saw on TV the scene where Merkel and Sarkozy were laughing. QUOTE "The perceived slight, notably at a news conference in Brussels where Merkel and Sarkozy exchanged ironic smiles and laughter following a question about whether they were reassured after meeting Berlusconi, has caused some bitterness in Italy." UNQUOTE (From the same article) It was very humiliating for Berlusconi.

I think the article on the BBC website that Casa Monal posted is one of the few sensible ones on the situation in Italy I have seen. Here, it is all about lack of growth and lack of a plan for growth. The debt figure as a %age of GDP is a red-herring as it has been that way since the 90's and in fact Italy spends les sthan it receives in tax revenue each year. I have been reading about the various (and ever changing) growth plans in the newspapers here and they are a farce. Not one serious proposal that would make a difference. The only one who seems to have any idea is Emma Marcegaglia but I'm afraid no-one is listening.

I agree with you, Penny, the level of the Italian debt has been pretty much the same over a long period; however, what really counts is the ability to repay that debt. In the current economic climate this is increasingly difficult. Also, the levels of tax revenue are decreasing throughout the world also because of the crisis and, although I do not think that we could have very accurate figures at this stage, this is prompting all those worries. On the other hand, I do not trust those credit rating firms and their reports.

  Numbers are not my strong point. I just about understand all the statistics and percentages quoted. What I do understand though is that once again we are trusting banks to resolve the Greece and Europe crisis. It just beggar’s belief!  The banks are primarily responsible for the world financial crisis, thanks to their stupid investments. Governments don’t have money, so it’s us hardworking taxpayers who are paying for their mistakes.  Let’s hope that today’s deal is a bailout for Greece and a deal to save Europe and not the banks.

I agree with Casa Monal. The banks are responsible for this catastrophe which has dragged everyone into a crisis. Greed is (or was) good! They gambled with their money.... well, we should say our money and they were rescued by those who represent us in theory, with our own money... Not a nice picture and a recipe for disaster. And we shall be paying for it for a long time. It is going to be necessary to have a profound change in the economy before we can breathe easy.

  Italy sells bonds at record high of 6% at auction   Italy's cost of borrowing has reached a record high, despite the deal reached to contain the eurozone debt crisis. Italy paid 6.06% to borrow for 10 years at an auction on Friday, the most since the euro was created in 1999. The rate jumped from 5.86% - the previous record high - at its last auction a month ago. The auction came as stock markets failed to follow up on their global rally on Thursday, with shares in many European banks turning lower. An interest rate of 6% and higher is generally considered to be unsustainable. The Italian Treasury also failed to meet its borrowing target, having hoped to sell as much as 8.5bn euros ($12.1bn, £7.5bn) of bonds. They only sold 7.9bn euros of the 10-year benchmark debt.   Italy concerns Italy has the highest total debt in the eurozone, amid stagnant growth. But Italy has the advantage of having most of its debt owed to its own people rather than external investors. This buys it more breathing room than, say, heavily-indebted Greece. Losses on the Italian stock market increased after the auction results were announced.   On Thursday, eurozone leaders agreed to expand the single currency's bailout fund to 1tn euros, and to take measures to recapitalise banks.   Stock reaction Earlier, banking stocks such as Barclays and Royal Bank of Scotland rose for the second day. But they turned lower as the trading day went on. "The best we can say is that the EU have engineered a temporary reprieve but there is no guarantee of a final resolution to the crisis," said Neil MacKinnon of VTB Capital. Lloyds Banking Group closed down 5.2%, Barclays fell 4.2% and RBS dropped 3.6%. In Germany, Commerzbank lost 4.3%. However, French banks ended the day higher, with Credit Agricole climbing 3.7%, BNP Paribas gaining 3.5% and Societe Generale rising 1.7%. Under the terms of the Brussels deal thrashed out by EU leaders, banks must raise more capital to protect themselves against losses resulting from any future defaults. At the same time, some banks accepted a loss of 50% on their Greek debt.

  Call for Berlusconi to step down as Italy worries grow 3 November 2011   Six former allies of Silvio Berlusconi in the Italian parliament have urged him to quit after his government failed to agree urgent economic reforms. The rebel MPs wrote an open letter calling for a "new political phase and a new government" to enact reforms agreed with Italy's eurozone partners. Mr Berlusconi told fellow G20 leaders at a summit in Cannes that Italy had always honoured its debts. But Italian government bonds came under new pressure amid market jitters. Yields on 10-year BTP bonds hit more than 6.3%, creeping closer to the level of 7% which many analysts believe could lead to a so-called "buyers' strike" where investors take fright and refuse to buy, Reuters news agency reports. The rebel MPs, three of whom have already left the ruling coalition, wrote to Mr Berlusconi in a letter published by the daily Corriere della Sera. "Be the backer of a new political phase and a new government which would have the task, from now until the end of the legislative term, of implementing the agenda agreed with our European partners and with it, the indications which came from the European Central Bank," they said. The letter was signed by Roberto Antonione, Isabella Bertolini, Giustina Destro, Fabio Gava, Giancarlo Pittelli and Giorgio Stracquadanio. On Wednesday night, a cabinet meeting in Rome broke up without agreement on a comprehensive package of emergency reforms. Instead, there were only plans to add amendments to bills already before parliament. Mr Berlusconi went to Cannes without being able to produce any dramatic evidence of progress, the BBC's Alan Johnston reports from Rome. But the Italian prime minister sought to assure fellow G20 leaders that his country's overall wealth was far higher than its stock of debt.

  7 November 2011 Italy government borrowing rates hit euro-era high   The Italian government's borrowing cost has risen in early trade as fears grow over political uncertainty in Rome. The yield on Italian 10-year bonds rose from 6.37% to a euro-era high of 6.64%. It is feared that Italy, the eurozone's third biggest economy, could become the next victim of the debt crisis. PM Silvio Berlusconi faces a crunch vote on public finance on Tuesday. Article continues here