Italy bond yields soar; euro zone troubles deepen

Mon Nov 7, 2011 8:26pm EST
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By Lefteris Papadimas and Paolo Biondi

ATHENS/ROME (Reuters) - 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.

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.

Greece's outgoing socialist prime minister and conservative opposition leader rushed to put in place an interim national unity government for just long enough to save their country from imminent default by implementing a new bailout program.

France announced new austerity measures designed to preserve its wobbly AAA credit rating, without which the euro zone might no longer be able to bail out its weakest members.

In Brussels, euro zone finance ministers agreed a detailed mandate to scale up the currency zone's rescue fund by the end of November to shield vulnerable but solvent economies such as Italy's and Spain's from a possible Greek default.

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.   Continued...

<p>A man holds his head at the bourse in Madrid November 7, 2011. European stock futures pointed to a weaker open for equities on Monday as political uncertainties in highly-indebted Italy and Greece raised fresh concerns that the region's debt crisis would intensify and threaten a fragile global economic recovery. REUTERS/Andrea Comas (</p>