Italy bond yields soar; euro zone troubles deepen

Italian government bond yields soared to near 15-year highs, putting the euro zone's third largest economy front and center of the region's debt crisis, despite scrambling efforts by policymakers to stem the growing contagion.

Reuters 

Italy, the world's eighth largest economy, overtook Greece as the prime threat to the stability of the 17-country single currency zone, as finance ministers met to try to find ways of building a firewall around the two-year-old crisis.

Italian 10-year bond yields rose to their highest since 1997 -- approaching levels regarded as unsustainable -- with political turmoil in Rome threatening to drag a fourth European economy after Greece, Ireland and Portugal into the debt mire.

Jean-Claude Juncker, the chairman of Eurogroup finance ministers, said the European Central Bank would take part in monitoring Italy's promised economic reforms along with the European Commission and the International Monetary Fund, effectively putting the country under full surveillance.

Berlusconi defies pressure

In Rome, Prime Minister Silvio Berlusconi defied huge pressure to resign as he struggled to hold a crumbling center-right coalition together after being forced to accept intrusive IMF surveillance of his economic reforms.

Political sources said leaders of Berlusconi's PDL party had urged him to resign late on Sunday but he was resisting.

Juncker stopped short of calling for a national unity government in Italy, saying it wasn't under EU/IMF protection.

"What we are expecting from Italy is that Italy will implement all the measures which have been announced in Silvio Berlusconi's letter," he said after the finance ministers' meeting, referring to a letter sent last month that set out plans for pensions reform and deregulation.

Stocks fell worldwide on the uncertainty, but Italian shares ended higher, partly on hopes that Berlusconi could soon be gone, traders said.

A cabinet minister said Italy would face early elections if party rebels stripped Berlusconi of his majority in a crunch vote on public finances in parliament on Tuesday.

"If we have the majority we'll carry on, otherwise there'll be elections," Gianfranco Rotondi, a minister without portfolio, said after meeting Berlusconi at his Milan home.

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From al-Jazeera

Italy's Berlusconi fights for political survival