Italy Enters Danger Zone?

London, UK - 9th November 2011, 9:05 GMT

Dear ATCA Open & Philanthropia Friends

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

1. Equity markets euphoria notwithstanding, Italy could yet drag the Eurozone and world financial markets into a new and formidable out-of-control crisis;

2. Even if Berlusconi goes, it is unlikely that any parliamentary consensus will emerge in the short term to cut Italy's massive debt and boost growth;

3. There is no agreement amongst the political parties on either a national unity or technocrat government to get Italy out of the mess it finds itself in;

Italian 10-year bond yields

4. Yields on Italy's 10-year benchmark government bonds spiked close to 7 percent on Tuesday, a sign that markets are questioning the country's ability to service and pay its debt;

5. The spike in Italian bond yields resulted in a spread of almost 500 basis points to German bunds;

6. Italy's government debt bond market is the third biggest in the world, behind the US and Japan;

7. Italy is reaching the point where Greece, Ireland and Portugal were forced to seek a bailout from the IMF and EU;

8. Increased European Central Bank (ECB) bond buying, albeit within a limit, has so far failed to halt the spike in Italian bonds yields;

9. Italian bond yields are now at that dangerously elevated level from which no other Eurozone government bond market has ever recovered;

10. Unlike Greece, Ireland or Portugal -- all of which received financial lifelines -- Italy has too much government debt of nearly two trillion euros -- to be rescued by its European neighbours;

11. Given the Eurozone's inadequate bailout facilities, many argue only an unlimited ECB commitment to buy Italian bonds can prevent the debt crisis spiralling out of control;

12. ECB has repeatedly said it has no mandate to act as lender of last resort to countries. To do so would break European law;

13. New ECB President Mario Draghi has stressed the ECB's bond buying is limited and temporary; and

14. Italy has the third-biggest economy in the eurozone and its debt worries are a huge threat in the wider crisis facing Europe's single currency.


Bond market yields can cross a point of irreversibility and after breaching that point-of-no-return, the cascade of selling accelerates. Has Italy entered that danger zone?


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