Italy Enters Danger Zone?
London, UK - 9th November 2011, 9:05 GMT
Dear ATCA Open & Philanthropia Friends
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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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