Italy is likely to need an EU rescue within six months as the country slides into deeper economic crisis and a credit crunch spreads to large companies.
Mediobanca, Italy's second-biggest bank, said its "index of solvency risk" for Italy was already flashing warning signs as the worldwide bond rout continued into a second week, pushing up borrowing costs. The report warned that Italy will "inevitably end up in an EU bailout request" over the next six months, unless it can count on low borrowing costs and a broader recovery.
Emphasising the gravity of the situation, it compared the crisis to when the country was blown out of the Exchange Rate Mechanism in 1992 despite drastic austerity measures. Italy's €2.1 trillion debt is the world's third-largest after the US and Japan. Any serious stress in its debt markets threatens to reignite the eurozone crisis. This may already have begun after the US Federal Reserve signalled last week that it will begin to drain dollar liquidity from the global system.
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© Independent Newspapers Ireland Ltd.
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