Debt crisis: while Rome burns, the eurozone fiddles

The Telegraph ^ | 11/9/2011 | Robert Winnett

[bruinbirdman]

Italy on Wednesday became the first major economy to require an international bail-out as its debts hit “totally unsustainable levels”.

The country's escalating crisis prompted questions about whether European leaders had sufficient will or financial firepower to rescue it.

The interest rate at which the Italian government borrows on the international bond markets hit seven per cent – the point at which the smaller eurozone economies of Ireland, Portugal and Greece had to be rescued.

Italy, the world’s eighth largest economy, has more than £1.5 trillion worth of debt, which has prompted speculation from some world leaders that it is too big to rescue.

Silvio Berlusconi’s pledge to resign as prime minister failed to stem the financial turmoil, and mixed messages on how the eurozone would respond to the crisis added to uncertainty in the markets.

Angela Merkel, the German chancellor, called for deeper European integration and a new “breakthrough” treaty that would give the EU greater fiscal powers to stop member states from slipping into dangerous levels of debt.

However, there were also reports that German and French officials were privately looking at ways to make it possible for European nations to leave the eurozone, causing US shares to slump by three per cent last night.

The turmoil dramatically increased the risk of a “double dip” recession in Britain, with most economists predicting that the economy will grind to a halt before the end of the year.

Senior Government sources believed that a full-scale Italian financial collapse could knock “several percentage points” off the size of the British economy. British banks have more than £42 billion of outstanding loans to Italy, including almost £10 billion to the government.

David Cameron described the state of the Italian economy as “tragic” and urged European leaders to intervene quickly in the situation

[Mariner]

"Gold, $1,200.00 by the end of the year, eh?"

Yep, that's my prediction...though time is running short.

[familyop]

Agreed. The overspending will stop with defaults, and we can only prepare ourselves.

[Vince Ferrer]

Italy just looking for a “ Hair Cut:” like Greece. Want the people to forgive 50% of their debt.

Some countries like Ireland might, but Italy was done in by the fear of bond investors, especially after the 50% non credit event Greek haircut. If they can't guarantee that you will get your money back, and can't insure against that with CDS, they stopped buying, which raised rates on Italy so high so fast, it made the Greek deal irrelevant before it was even begun to be implemented.

[SunkenCiv]

Just so there’s no confusion, I was talking about your sidebar link. :’)

Believe it or not, I’m not concerned about Eurozone debt.