Looking Past Greece, Investors Focus on Italy Update Berlusconi Will Resign

blr-editor | November 8, 2011 | Comments (0)

Now he'll be able to focus on "bunga bunga"

The past few week have reiterated the power of the financial markets relative to even the collective strength of the Eurozone.

While holding Greece in a death-grip, mitigated only by the removal of George Papandreou and the formation of a unity government, the markets have now turned their attention to Italy.

Their new demand: the removal of full-time playboy, part-time leader, Sylvio Berlusconi as Premier. Today came the announcement that he will indeed step down.

Berlusconi’s leadership of Italy has become untenable as he is viewed as being incapable of carrying out the reforms required to solve Italy’s debt problems.

In a dangerous sign, Italy’s borrowing costs have soared to new highs this week as the contagion feared by the Greek crisis are proving to be all too real.

Italian yields for 10-year bonds touched a new record of 6.71% today, raising the risk that its massive debt — the second highest in Europe at 120% of GDP — has become too great.

Italy is also too big to be rescued by the Eurozone or IMF. Their only option if borrowing costs continued to rise would be default. The result might be the unraveling of the Eurozone.

Reuters notes;

In a sign that they are increasingly cut out of money markets, the ECB reported Italian banks needed 111.3 billion euros in central bank funding in October, up from 104.7 billion euros in September and a mere 41.3 billion in June.

Even the European Financial Stability Facility, the euro zone’s bailout fund, had difficulty finding buyers for its top-notch AAA-rated paper on Monday, drawing barely enough bids for 3 billion euros of 10-year bonds issued to support Ireland.

The breaking news is that Prime Minister Sylvio Berlusconi has finally agreed to resign immediately after reforms are passed, thus bowing to the relentless pressure for him to go.

Meanwhile the Eurozone continues in crisis mode. Where do you think this is headed? Will we even have a Eurozone in another year?