Italy on jitters over the debt crisis

After Greece, it is Italy’s turn to be hit by the spiraling debt crisis. On Monday, Europe’s financial crisis worsened as Italian government bond almost touched 15-year high, aided by slow economic growth. Like Greek Prime Minister George Papandreou, pressure mounted on Italian Prime Minister, Silvio Berlusconi, to resign and allow a new government to exercise reforms to reduce debt. But unlike Papandreou, the Italian Prime Minister refused to step down from his chair.

Unlike Greece, Portugal and Ireland, Italy needs a huge rescue package. The Italian debt amounts to 1.9 trillion Euros. It is feared that arranging for such a massive bail-out package could bring down the European Union, if not the global economy.

Monday saw the 10-year government bond of Italy touch 6.6 percent, the highest since Euro was introduced in 1997. As interest rate rises, government has to pay out more from its budget to investors who own these government bonds, thereby getting into debt.
The austerity measures promised by Italy to the European Central Bank was supposed to be passed before November 15th, current year. But that is caught in the deadlock because of conflicting interest within the government.

In an effort to save Italy from going under further debt crisis, European Central Bank has been buying government bonds to check its borrowing costs. But to tackle debt crisis, the Italian government must be prepared to take tough stand.