Could Italy Be Next?

Italy has begun crisis talks with the European Union:

Italian finance minister Giulio Tremonti has begun crisis talks with Jean-Claude Juncker, chair of the Eurogroup of finance ministers from the 17 eurozone countries.

The talks come as yields on Italian bonds have reached euro-era record levels.

Italian Prime Minister Silvio Berlusconi is due to address parliament on the economy later on Wednesday.

The yields on Spanish bonds have also been rising.

In early trading on Wednesday, the yield on Italian 10-year bonds rose 0.19 percentage points to 6.21%, while the yield on Spanish 10-year bonds was at 6.34%, just below Tuesday’s record of 6.45%.

A cost of borrowing above 6% is considered unsustainable by many economists.

“The upward march in Spanish and Italian bond yields is evidence of the relentlessness of the sovereign debt crisis,” said Jane Foley, an analyst at Rabobank International.

The problems come less than two weeks after eurozone leaders agreed a second bailout for Greece, which was partly aimed at preventing the sovereign debt problems spreading to other countries.

Portugal and the Republic of Ireland have also received bailouts to help them cope with their debt problems.

Italy, which is the eurozone’s third-largest economy, has so far managed to avoid sovereign debt problems, despite having one of the highest debt-to-GDP ratios in the eurozone at 120%.

But Italy’s economy is twice as big as Greece, Portugal and the Irish Republic combined, so a bailout would probably be unaffordable…

Oh dear! Things are getting worse and worse.

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