“Italy Too Big to Bail Out as Crisis Enters ‘New Phase’.” That was the headline I read over at Bloomberg earlier. Don’t get me wrong, I know Italy is facing serious problems, but when will they actually get rid of the bungling “bunga bunga” Berlusconi? Today, the country has been auctioning an estimated €3 – €5 billion in fixed-rate bonds.

I point a modest finger at Berlusconi here because what Italy needs right now is a leader and that is something that Berlusconi doesn’t do well. The state debt crisis has been around for decades but it has only worsened under the dictator-like behaviour of one Silvio Berlusconi.

The story is the same as that of many debt ridden European countries, bad policies and outrageous spending cuts have hit areas like the education and university sector.

Over the long term, many young and old Italians have found it almost impossible to find stable work. Thanks to massive increases in the flexible nature of the EU labour market, this trend has grown over the decades because flexible labour is happier to work for lower wages.

And the educated have left for greener pastures.

Berlusconi isn’t entirely to blame, as this is something that has been pushed by governments of both the left and right during the 1990’s and 2000’s. But Berlusconi has just been in power for too long now and needs to stop feeding his pockets too.

The four auctions today are a kind of test for the Italians. Success at the auctions is essential so that Italy, the EU’s third largest economy, can demonstrate it is in no danger of losing access to market funding.

You’ll have to trust me, but with some basic accounting in the background, the debt sale would still leave Italy short of the estimated €175 billion it needs to finance itself to the end of the year.

Now the Bloomberg headline starts to make sense.

From the Bloomberg article:

The euro’s fate may lie in the hands of Italian bondholders as the region’s debt crisis threatens to envelop the Mediterranean nation, according to Credit Agricole Corporate & Investment Bank. The Chart Of The Day shows Italy’s government debt burden, the euro area’s largest at 1.8 trillion Euros ($2.6 trillion), dwarfs those of Greece, Ireland and Portugal, which already received bailouts, and Spain, which has the next-highest borrowing costs.

German Chancellor Angela Merkel is under pressure from coalition partners to limit its contribution to sovereign bailouts. The European Financial Stability Facility currently has a lending capacity of 250 billion Euros.

With EU member country’s having their credit ratings downgraded quite regularly of late, Luca Jellinek, head of European interest-rate strategy at Credit Agricole CIB in London puts it bluntly:

If Italy gets to the point where its debt auctions start to fail and it loses access to the market, it becomes difficult to imagine who would have the kind of money that would be required to rescue it.

The IMF, maybe? No. Not at the moment, they’re still busy trying to find someone to give Greece another €104 billion odd in bailout funding.

Italian government debt is now sitting at more than 120 per cent of the country’s annual economic output.

Let’s just hope Italian thinking can become a little more al dente and that they get rid of Berlusconi too sometime.

[Sources: Bloomberg, Mail&Guardian, Metro]