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. 10-year bond Italian affected

7.4%

Italian rescue could cost ? 1.4 trillion

. Find the next prime minister of Greece becomes the joke

11:42:

Robert O'Daly

, The Economist Intelligence Unit, explains why prospect of general elections in Italy is so attractive (as I said in this previous post):

an early general election would only increase the fears of investors, because the current electoral law, there is a risk that whoever wins the most votes would not have a clear majority in both houses of Parliament.

This would make it impossible

an effective government since the project must be approved in both houses in exactly the same way to become law.

The sell-off in financial markets remains - the

FTSE 100

fell 116 points, more than 2%. The Italian

FTSE MIB

was down 4.5%.

and return on the benchmark 10-year Italy was stable at a frankly disturbing 7.48% (compared to 6.8% during the night - a notable movement). The

European Central Bank

buy, but not enough ....

11.30:. President

of Italy spoke about the crisis enveloping the country today

Giorgio Napolitano

told an audience at the Quirinal Palace as:

Italy must restore credibility and confidence as a country for us before leaving a dangerous influence on financial markets and public debt under the conditions facing our institutions bank.

This requires an immediate and sustained commitment to the management of public debt.

It will not be enough to reassure financial markets. As mentioned above (and explained here yesterday by John Hooper) the best way to calm international investors would be to create a unity government headed by "technocrats" who will lead through unpopular austerity measures and to the Italy in the path of deficit reduction and economic growth [now

Challenge].

a typical Italian election could last 60 days - bondholders are unlikely to tolerate this kind of uncertainty (and Italy can not simply ignore what you need to roll over ? 300 billion debt in 2012).

11.15:

As if the European crisis was also not bad enough with the ills of Italy, Greece in search of a first Minister

still . We had hoped to get a decision at any time now - but it seems that Lucas Papademos is no longer the favorite

Helena Smith reports: Search of Greece to find a prime minister descended into farce after a whole night thriller here with ringing phones, meetings called and canceled the possible candidates to be called by the leaders of benefit discussions behind closed doors and the new names the entire surface of the time. At last count, there seems to be five men (no women far as I know) to be considered for the position. Lucas Papademos, former Vice President of the European Central Bank, which was a shoo-in last night with the Greek media, at least in view of his elevation to the position of "fact" seems to be the leading candidate said. Greek television quoted senior EU officials in Brussels, saying that politicians supporting Athens may be "playing with fire."

Greek media warned that the crisis debt of Italy could crush their own rescue.

indicative mood, the first page of the newspaper Ta Nea-sellers today proclaims: "The Phantom of the Italy [floating] in the sixth section," referring to the war of words which also erupted most indebted in Greece ? 8 billion rescue loan.

Helen

As indicated, the opposition leader Antonis Samaras of Greece is not a fan of the austerity of Greece.

Twenty-four hours after the euro zone, Jean-Claude Juncker, the president raised the stakes by saying that the politicians of Greece would have to engage in economic reforms in writing prior to receiving Using the conservative opposition New Democracy principal is still foaming at the mouth with the ruling party in excess of this measure "large."

Antonis Samaras, head of ND, remember has repeatedly said he wants to "renegotiate" the rescue arrangements for Greece on the grounds that their continued growth by the austerity has that countries make the situation worse. This raises the specter of these funds, which should be shipped in September, not be published.

As he says Ta Nea, the events in Rome, some may say there is no money to give to Greece at all. Athens, meanwhile, is counting the days until the coffers are dry - the new loan, without public sector wages and pensions are not paid. Finance Minister Evangelos Venizelos said that the country has enough money to last until mid-December - - resulting in search of a new government with more urgency

Greeks hoped to have a new government between the parties at noon - but at this rate who knows

10:54 pm:

Why does it matter if Italy is facing the prospect of paying over 7% for loans from financial markets

Because the national debt of Italy 2.7 times greater

like Ireland, Greece and Portugal combined.

And because more than ? 120 billion of long-term debt maturing in 2012, ? 180bn short-term debt (aka points). So for the "return" of this debt, Italy should be able to borrow the same amount of international investors (in excess of any deficit that will next year).

Gary Jenkins Evolution Securities, said that not everything will be available for the EU and the IMF to save Italy.

In fact, he says, could cost ? 1.4 billion.

If we look at it simplistically, the two packets of Greek, the most bailing out Ireland and Portugal have a cost of ? 388bn, adding that the ECB buys to support these markets until months in August of this year of ? 74bn and around ? 50 billion of private sector participation in the Greek second offer (? 80 billion less than ? 30 billion of the safeguard clause already represented in the second package of 130 ? 000 million) and total cost of ? 512bn.

now multiplied by 2.7 to estimate the cost of the rescue in Italy, we see ? 1.4trn.

10:36:.

The euro also fell against other major currencies as the evils of Italy threat of the euro area in general

The euro has fallen by more than one and a half percent against the dollar at $ 1.3664, as shown in this graph.

The euro is also using a penny against the pound sterling at 85.5p.

European stock markets, with the following

FTSE 100

of 93 points in 5474 and the Italian stock market fall 3, 7%

10:27:

As the interest rate on bonds of the Italians again, the 10-year yield just hit 7.25%

. Investors are putting the European Central Bank

a vice - especially the new chairman, Mario Draghi (former governor of the Bank of Italy

The word of the City is that the ECB is buying debt in the Italian market, in an attempt to lower the yield. But it is difficult to know who works ....

10:21: So why not

Berlusconi

provides the calm markets, rather than create more alarm? There are three main reasons:

political uncertainty

. Berlusconi promised to go, but it has not really left. He said this morning that always favors early elections -. But this would mean a long season and there is no promise of a clear winner at the end

investors prefer a kind of unity government that could put pressure on the urgent task of economic reform. Not only approve a budget this month -.. In fact the application

Europe

own confusion

The agreement reached in Brussels two weeks ago seems less awesome day. The plan to expand the Financial Stability Fund to ? 1 trillion flounder because the emerging rich are not willing to provide funds.

financial position of Italy.

its national debt is close to ? 2 billion, giving a debt to GDP ratio of 120%.

Too big to bail?

The failure of the G-20 to make real progress in Cannes last week could rebound on them now.

Italy is scheduled to auction ? 5 billion of debt and Thursday - Government sources insisted yesterday that will continue ....

9:58 pm:

The news that Italian bond yields were crushed by the bar of 7% added to the feeling of growing panic in the country .

, predicted that the European Central Bank to accelerate its plan to purchase the Italian debt. The political situation in Italy, however, threatens to drag the crisis the euro area to a new level.

markets are accepting that the removal of Prime Minister Silvio Berlusconi of Italy, offers little in terms of solution. Perhaps a bigger problem facing Italy is the lack of a strong and credible opposition. Markets expect a technocratic interim government charged with the difficult task of implementing structural reforms.

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