Bloomberg News

Italy Too Big as Crisis Enters ‘New Phase’: Chart of the Day

July 14, 2011

July 14 (Bloomberg) -- The euro’s fate may lie in the hands of Italian bondholders as the region’s debt crisis threatens to envelop the Mediterranean nation, according to Credit Agricole Corporate & Investment Bank.

The CHART OF THE DAY shows Italy’s government debt burden, the euro area’s largest at 1.8 trillion euros ($2.6 trillion), dwarfs those of Greece, Ireland and Portugal, which already received bailouts, and Spain, which has the next-highest borrowing costs. German Chancellor Angela Merkel is under pressure from coalition partners to limit its contribution to sovereign bailouts. The European Financial Stability Facility currently has a lending capacity of 250 billion euros.

“If Italy gets to the point where its debt auctions start to fail and it loses access to the market, it becomes difficult to imagine who would have the kind of money that would be required to rescue it,” said Luca Jellinek, head of European interest-rate strategy at Credit Agricole CIB in London. “It’s undoubtedly bigger than the current scope of the EFSF.”

European Central Bank incoming President Mario Draghi said yesterday that the euro-area’s debt crisis has “entered a new phase” and policy makers must come up with a “clear” response to stop the contagion that threatens the survival of the region’s single currency.

Italian 10-year bond yields surged above 6 percent on July 12 for the first time since 1997 after Moody’s Investors Service and Standard & Poor’s said the nation may be unable to trim its debt burden.

--Editors: Matthew Brown, Mark Gilbert

To contact the reporter on this story: Garth Theunissen in London at gtheunissen@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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