Greece. Spain. Now, it’s Italy’s turn. The country’s prime minister, Mario Monti, announced on Wednesday, July 11, that he is considering asking the Eurozone for help to secure Italy’s government bonds. Yields above 7% are the bogey for unsustainability by a government for its bonds’ debt service. Italy is the third largest Eurozone economy. That means creditors may view a bailout as ineffective.
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As if the European economy were not fragile enough, Monti’s statements that Italy may need to draw on the European Stability Mechanism (ESM) shook investor confidence even more after disappointment from the results of European finance ministers met in Brussels.
Mandates for Spain to realign its debt to gross domestic product (GDP) ratios back within Eurozone guidelines by 2014 were contrary to market hopes that Spain would be allowed an extra year to do so. New austerity measures were also instituted as a requirement for much needed aid for Spain.
This indicates Europe’s troubles are far from over. Markets may wonder how many countries will require aid before Europe decides to address long term structural issues
instead of short-term relief.