Italian Prime Minister Silvio Berlusconi said he would resign after the country\u2019s budget is passed. The 75-year old Berlusconi has been a dominant force since forming the Forza Italia party in 1994, and his pending departure marks the end of an era for Italian politics.<\/p>\n
But while the political spectacle that came with Berlusconi could now fade, the financial show might be\u00a0just beginning. The pricing \u2013 set by traders who are selling Italy\u2019s bonds \u2013 hit 7.3% by mid morning after breaking through 7% a short while earlier. \u201cIt\u2019s like tectonic plates,\u201d a desk analyst told CNN. \u201cYou have this pressure and then it breaks.\u201d<\/p>\n
To put Italy\u2019s bond yields in context: Ireland bond yields were just over 8% before the country was bailed, Greek\u00a0yields touched 10% and Portugal\u2019s hit 9%.<\/p>\n
Italy and Spain \u2013 the eurozone\u2019s third and fourth largest economies \u2013 are those often referred to as too big to fail. So far, the eurozone countries and the European Central Bank have actively kept the bloc\u2019s struggling economies afloat.<\/p>\n
But their powers may be limited when it comes to Italy. The numbers are huge, and the political – and financial – capacity to continue supporting the\u00a0bloc\u2019s weak will face a mighty test should Italy stumble.<\/p>\n
The numbers are brutal. Italy\u2019s economy makes up 17% of the eurozone. Combined, Greece, Ireland and Portugal \u2013 the countries currently living off Europe\u2019s bailout fund and the International Monetary Fund \u2013 make up less than 6%.<\/p>\n
Italy\u2019s debt stands at \u20ac1.9 trillion ($2.6 trillion), or 120% of gross domestic product. Compare that to the combined Greece, Ireland and Portugal\u2019s debt \u2013 around \u20ac640 billion as at full year 2010, according to Eurostat, the statistical office of the European Union.<\/p>\n
Italy faces around \u20ac380 billion in bond repayments and deficit costs by the end of 2012, according to Evolution Securities\u2019 analyst Elizabeth Afseth. Its next major payment is \u20ac26 billion, due in February next year. With its funding costs now over 7%, that could prove an huge hurdle.<\/p>\n
The oft-quoted 7% figure is, by and large, arbitrary. It is regarded as the level at which countries can no longer fund themselves – but depends on how long it stays at that level and how much the country needs to raise.<\/p>\n
Vitally, however, it is a measurement of confidence and that \u2013 in these volatile markets \u2013 matters. When yields hit 7% it is extremely difficult to pull them back. According to Afseth, it is seen by investors as a \u201cpoint of no return.\u201d<\/p>\n
And Italy\u2019s situation is probably worse than the bond yields suggest, with the ECB\u2019s intervention keeping the price of its funding down. According to Evolution Securities, the ECB began buying Italian and Spanish bonds on August 8 this year, after yields hit 6.08%. The following week, the ECB settled \u20ac22 billion of purchases. Last week, the bank settled \u20ac9.52 billion in purchases \u2013 the bulk of which were most likely Italian bonds, according to Afseth.<\/p>\n
While the ECB \u2013 whose presidency has just been taken up by Italy\u2019s Mario Draghi – has proved a key player in the survival of the eurozone to date, its patience appears to be growing thin. This week Yves Mersch, the governor of Luxembourg\u2019s central bank and a member of the ECB\u2019s governing council, told Italy\u2019s La Stampa the bond buys should be \u201climited in quantity and in time.\u201d<\/p>\n
He said if the bank\u2019s interventions are being undermined by a lack of effort from national governments, \u201cwe should ask ourselves about the problem of incentives.\u201d<\/p>\n
If Italy is forced to turn to Europe\u2019s bailout fund, the outcome looks ugly. The fund is being enlarged to a lending capacity of \u20ac440 billion. Of that, around \u20ac140 billion has been committed to the bailouts of Greece, Ireland and Portugal, according to Afseth.<\/p>\n
That leaves \u20ac300 billion \u2013 a sum that Italy would suck up, before needing more.<\/p>\n
Plans to leverage the bailout fund, part of the triple-pronged attack on the crisis revealed after European leaders\u2019 crisis meeting in October, will also suffer from the market\u2019s plummeting confidence.<\/p>\n
And so the markets watch and wait, as Italy\u2019s \u201ctoo big to fail\u201d economy teeters on its financial tightrope.<\/p>\n","protected":false},"excerpt":{"rendered":"
Italian Prime Minister Silvio Berlusconi said he would resign after the country\u2019s budget is passed. The 75-year old Berlusconi has been a dominant force since forming the Forza Italia party in 1994, and his pending departure marks the end of an era for Italian politics. But while the political spectacle that came with Berlusconi could […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-32071","post","type-post","status-publish","format-standard","hentry","category-city-crime"],"_links":{"self":[{"href":"https:\/\/www.thetidenewsonline.com\/index.php?rest_route=\/wp\/v2\/posts\/32071","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.thetidenewsonline.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thetidenewsonline.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thetidenewsonline.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thetidenewsonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=32071"}],"version-history":[{"count":0,"href":"https:\/\/www.thetidenewsonline.com\/index.php?rest_route=\/wp\/v2\/posts\/32071\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.thetidenewsonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=32071"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thetidenewsonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=32071"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thetidenewsonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=32071"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}