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Why Italy may need a bailout, too

With high debt and falling stocks, Italy appears to be the next European economy on the brink. Investors and European officials are now sounding alarm bells.

By Staff writer / July 11, 2011

A view of Milan's stock exchange headquarters is seen, Monday, July 11. Finance ministers gathered in Brussels are debating how to secure a private-sector contribution to a new Greek package and how to prevent the debt crisis spreading to bigger countries, including Italy.

Antonio Calanni/AP

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Paris

With little advance warning and declaring it was not a “crisis” meeting, senior European officials today formally discussed Italy’s sovereign debt woes for the first time.

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They met in the wake of sharp stock falls last Friday and during spikes today in Italy’s 10-year bond yields that brought alarm that a debt crisis and default talk could spread to large eurozone nations.

Today’s meeting took place around an inconclusive European Union discussion on a second Greek bailout following last year's $110 billion rescue package. The terms of a second bailout are contested – something itself seen as spawning market fears about the struggling “peripheral” states, including Italy, Ireland, Portugal, and Spain.

Analysts say it is not the Greek crisis per se, but the lack of an agreed EU rescue and concomitant political resolve that troubles markets and is bringing a focus on Italy’s position.

The cost of insuring Italian bonds jumped from 5.2 percent to 5.7 percent today, drawing comparison to a similar jump last November in Ireland, a substantially smaller market.

Now, last Friday is being called “black Friday” in Rome after markets plummeted, and after the German newspaper Die Welt published quotes from unnamed officials close to the European Central Bank (ECB) that the current EU bailout fund was not adequate to handle an Italian collapse.

Today’s meeting was called by EU chief Herman Van Rompuy and reportedly included ECB President Jean-Claude Trichet, European Commission chair José Manuel Barroso, EU finance ministers head Jean-Claude Juncker, and leader of the EU economic and monetary section Olli Rehn.

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