Italy, with a much larger economy than Greece, has emerged as possibly the next domino in the ongoing European debt crisis. Italy’s prime Minister Silvio Berlusconi refused to step down on Friday after a party rebellion has brought his coalition to the brink of collapse.
Berlusconi, the 75 year old media magnate described party rebels as traitors to the country. Berlusconi said they would return to the fold once he spoke to them. Due to the escalating uncertainity, yields on 10-year Italian bonds hit a euro lifetime high of 6.43% at one point on Friday, close to levels which led to bailouts of Ireland and Portugal. Economists worldwide believe Italy will be Europe’s next big problem.
Italy, Europe’s third-largest economy, is the problem the EU has been trying to avoid by solving the Greek crisis. If Italy gets swept up in the debt contagion, it will threaten to overwhelm the European Financial Stability Facility and possibly weigh down the entire global economy.
In an extraordinary move, Italy said it had offered to allow the International Monetary Fund to scrutinize its books every three months to make sure a $75 billion austerity package is carried out according to plan. A team from the European Commission will also travel to Rome next week to start monitoring Rome’s efforts.
Berlusconi’s coalition government is having trouble implementing painful austerity measures recently passed to reduce the nation’s deficit and its $2.5 trillion mountain of debt. Berlusconi’s government is barely hanging on and faces challenges from the Northern League.
The International Monetary Fund is already overseeing the bailouts of three Western European countries. Ireland, Portugal and Greece are currently under scrutiny.