A few weeks ago, everyone was afraid that Italy would have to go the way of Greece. The Italian Government passed austerity measures, but nothing is looking up for the world’s eighth largest economy. Right now, Italy has the dubious honour of having more bets against it than any other country. Gross credit default swaps on Italian bonds are at $306 billion. Yields on 2-year Italian bonds surged to 4.78%.
Also today, Italian banks are taking hits and it’s already affecting other European banks.
Italy’s public debts are twice the maximum allowable for Eurozone countries. The Treasury has to come up with 500 billion Euros over the next three years. Even though the government has agreed to major spending cuts, there is so much wrong with their economy that nobody can be certain that they can keep up with payments. If Italy can’t pay its dues, banks all over the world will be vulnerable.