File photo taken on Oct. 7, 2010 shows Italian Prime Minister Silvio Berlusconi reacts during a press conference in Rome, Italy. (Xinhua File Photo/Wang Qingqin)
by Marzia De Giuli
MILAN, Italy, Nov. 9 (Xinhua) -- Italy`s borrwing cost soared to breaking point on Wednesday, after Prime Minister Silvio Berlusconi announced on Tuesday that he would resign after reforms aimed at calming the eurozone turmoil was adopted.
In a clear sign of the evaporation of investor confidence, the yield on Italy`s 10-year government bonds spiralled above a dangerous threshold of 7 percent to an euro-era record.
Greece, Portugal and Ireland were all forced to seek international bailout after their borrowing costs reached similar levels.
Unlike the above the three countries, a financial break down in Italy, which has an economy nearly three times the size of those of the three combined, would makes it far too large for the EU to bail out.
However, a risk of technical default of Italy is not likely in the short term, but it may become real if interest rates continue to attest at such high levels, Angelo Drusiani, a fund manager at Albertini Syz & Co. in Milan, told Xinhua.
Higher yields would make it more difficult and expensive for Italy to roll over its debts that according to the Italian central bank`s data amounts to 1.89 trillion euros (2.56 trillion U.S. dollars).
"It would be difficult to bear high interest rates in the long term, and plus in the ongoing situation of a limited productivity," Drusiani said, adding that the government should enact quick reforms to shore up Italy`s defense against Europe`s raging debt crisis, and thus reassure markets.
"It is imperative to restore the credibility of the country, we do not deserve to end up like Greece," Italian employers` association leader Emma Marcegaglia was quoted by local media on Wednesday.
"If we do not put an end to this situation, Italy will no longer have access to financial markets,"she stressed, "Right now, at this time, Italy is experiencing a dramatic moment. We are in the precipice."
Although the country is still solvent, investors fear it may not be able to sustain that level of borrowing, and a meltdown would send shock waves through the global economy, as what happens in Italy is also crucial to the euro zone`s survival.
In a bid to calm markets, Italian president Giorgio Napolitano said on Wednesday that reform measures should be passed and Berlusconi would resign "within a few days."
But the worry appears to be that even without Berlusconi at the helm, the next government will likely face the same pressures, as there is no guarantee that reforms to cut debt and boost growth will be quickly implemented.
The Italian stock exchange closed 3.78 percent down on Wednesday.
Moreover, analysts say current interest rates, if maintained, would cancel out the budget savings planned as part of a painful austerity program.
There is no agreement yet among political parties on either a national unity or technocratic government and the president`s consultations may be complex.