Dr. Mike Campbell

Italy seems set to follow in the footsteps of Greece, Ireland and Portugal as investor doubts on her ability to manage her debts send the yield on bonds to record highs. It has emerged that the Italian Finance Minister, Giulio Tremonti is engaged in crisis talks with Jean-Claude Juncker who chairs the group of finance ministers of the 17 nations that are members of the Eurozone.

In early trading this Wednesday, the yield that Italy was being forced to pay on its ten-year bonds was 6.21%, having risen 0.19%. Another nation with sovereign debt worries, Spain, saw the yield on its ten-year bonds relax back by 0.12% from Tuesday’s record level of 6.45%.
The Italian Prime Minister, Silvio Berlusconi, is expected to address the nation’s parliament on Wednesday about the economic crisis facing the country.

Rising interest rates on bonds mean that the cost of servicing the country’s existing debts becomes more expensive. Italy has the highest level of debt of any Eurozone nation. In June, the yield on Italian ten-year bonds was “just” 4.97%. The country agreed to austerity measures which were intended to restore investor confidence and cut €70 billion from the nation’s debt on the 15th of July. This move was in addition to cuts of €24 billion already slated for 2011-12. The austerity measures already in place mean that for every five public sector worker who retire, only one position will be filled.

If Italy does become the fourth member of the Eurozone to take advantage of an EU/IMF bailout facility, Italians can expect it to be at the price of further austerity measures and other reforms as the price of the deal.

It is highly unlikely that the sovereign debt crisis will remain restricted to the Eurozone when both the world’s third and first largest economies have massive debts of their own to pay down.