…On Monday, as concern grew about Italy’s prospects, investors were dumping Italian government bonds, causing the price to fall and the yield — a measure of the government’ borrowing costs and of investors’ perception of risk — to rise…
Italy’s pressing issues include the fact that Spain’s acceptance of a bailout means Madrid can no longer serve as a guarantor of one of Europe’ financial firewalls, the European Financial Stability Facility, which is meant to quarantine the debt crisis. That means Italy, with the third-largest European economy, after those of Germany and France, will have to shoulder a larger portion of the bill — even as Italy grapples with its own sharp economic downturn.
Bankers say Rome will now have to guarantee 22 percent of the fund, instead of around 18 percent currently. But because Italy does not have enough economic growth to generate the money itself, the government will have to borrow it at high interest rates, adding to an already heaving debt load.
See also Spain’s Rescate (“Rescue”) by Russ Winter