Italy on the brink as yields soar past point of no return

Tuesday, November 8, 2011
By Paul Martin

By Jeremy Warner
Telegraph.co.uk

The eurozone debt crisis has again conformed to pattern this morning; just as one fire abates, temporarily at least – with news of the formation of a government of national unity in Greece – another lights up. Lamentably, this one – Italy – may be too big to douse.

The yield on ten year Italian debt rose to 6.59pc this morning, widening the spread on German bunds to an unprecedented 4.81pc. These are the sort of levels at which Greece, Ireland and Portugal began to find themselves shut out of markets.

Yet this time, there appears nothing there to offer support. The “enlarged” European Financial Stability Facility is not yet up and running. Few seem prepared to offer it the “leverage” required for the mooted €1 trillion of fire power. The European Central Bank under its new president, Mario Draghi, has said it’s not its job to act as “lender of last resort” to governments. And the new funds that would allow the International Monetary Fund to step into the breach have not yet been agreed.

Internationally, moreover, there is growing resentment at being called apon to support further EFSF and IMF bailouts. Christine Lagarde, managing director of the IMF, could soon have a full scale rebellion on her hands. From China to Brazil, the now openly spoken mantra is that Europe should sort out its own problems. By what right does one of the world’s richest regions call on poorer, and sometimes even more indebted, nations to lend support?

As my colleague, Ambrose Evans-Pritchard, points out in this morning’s Daily Telegraph, the problem with Italy is not really one of contagion from the rest of the eurozone periphery. It’s much more to do with the fact that Italy is sliding into deep recession, further undermining already stressed debt dynamics.

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