Fears that Italy will be forced to seek a bailout sent Italian government bonds falling on Monday, as Europe's most senior finance ministers gathered to discuss the ongoing eurozone debt crisis.
The euro dropped sharply, as City traders and analysts warned that Italy could be close to becoming the fourth member of the eurozone to require financial help. The concern was shared in Europe's stock markets, with the FTSE 100 falling more than 70 points by lunchtime.
The yield, or interest rate, on an Italian 10-year government bond jumped to 5.4%, closer to the 7% level which is generally seen as unsustainable.
"What will really concentrate the mind of the finance ministers will be the recent upward trend in Italian government bond yields," said Gary Jenkins, head of fixed income research at Evolution Securities. "What would keep me awake at night if I was a European finance minister is that we are only about 2% away from a potential disaster scenario."
European Council president Herman Van Rompuy was scheduled to meet ECB president Jean-Claude Trichet, EU commission president José Manuel Barroso, EU commissioner Olli Rehn and Luxembourg's Jean-Claude Juncker, who chairs the group of eurozone finance ministers, at 11am BST to discuss the crisis.
Clouds have been gathering over Italy since Friday, when shares in several Italian banks fell sharply over concerns that they would fail the next round of EU stress tests. Economists have warned that the eurozone lacks the firepower to fund a bailout of Italy. German newspaper Die Welt reported on Monday that the European Central Bank is considering doubling its existing stabilisation mechanism to €1.5trn.
"We are seeing contagion spreading to Italy. The bailout facility as it stands would be nowhere near big enough to deal with Italy," Adam Cole, head of global currency strategy at Royal Bank of Canada Europe, told Bloomberg.
The Italian blue-chip index, the FTSE MIB index, fell by 3.25%, while the Spanish Ibex lost 2.8%. Traders in London said the eurozone crisis was dominating attention again, with the FTSE 100 down 1.25% or 65 points at 5924.
"The risk is that we may well have already seen the best of the stock market strength for the moment," said Yusuf Heusen, senior sales trader at IG Index.
The question is how will the EU survive this debt crisis with seemingly no end in sight for these vunrable nations with crippling debts spiraling out of control.
You can only bail out a country so many times before much like what will happen with Greece it still cannot afford its repayment on its finance on its debt. It will have to default. There is no other way.
TO bring bigger nations in on the deeper crisis hitting the weaker EU nations would spell catastrophy.
The next bank bailout could dwarf the last bank bailout in 2008 if austerity measures are carried out. There will be nothing left to bail these banks out this time leaving a partial or total collapse of the EU.
These news stories must be sending shockwaves through the capitalists minds and trembling them with fear. The question is to get themselves out of this crisis they will have to offload the debt on to the shoulders of the working class. But will they be able to push these measures through. I'm not so sure. The resistance in Greece already has shown the people will not take these cuts and privatisation lying down.
But for a big push back there needs to be a working class organisation on the political stage to lead the way.