Italy’s 10-year bond yield passed the critical 7 percent mark this morning. This 7 percent level is regarded as an important level as beyond this Eurozone countries have tended to head very quickly into dangerous territory meaning “requiring a bailout”.
The problem with Italy is that the EFSF bailout fund is insufficient to help an indebted economy as large as Italy, the country being the third largest in the euro zone. EFSF cannot help this sovereign to the same extent as aid was provided for Ireland, Portugal and Greece. The answer is that we are now in the process of a more active response from the ECB especially as we are finding that the leveraged EFSF is going to find it difficult to gain investor enthusiasm.
Euro tumbled against the dollar to $1.3666 by 10:30 GMT.