MidnightWatcher – Prophecy in Motion

“London (CNN) – Italy’s bond yields passed 7% Wednesday morning, breaching a psychological point at which markets consider countries at risk of being unable to fund themselves.

The dramatic rise in 10-year bond yields comes the day after Italy’s flamboyant Prime Minister Silvio Berlusconi said he would resign after the country’s budget is passed. The 75-year old Berlusconi has been a dominant force since forming the Forza Italia party in 1994, and his pending departure marks the end of an era for Italian politics.

But while the political spectacle that came with Berlusconi could now fade, the financial show might be just beginning. The pricing – set by traders who are selling Italy’s bonds – hit 7.3% by mid morning after breaking through 7% a short while earlier. “It’s like tectonic plates,” a desk analyst told CNN. “You have this pressure and then it breaks.”

To put Italy’s bond yields in context: Ireland bond yields were just over 8% before the country was bailed, Greek yields touched 10% and Portugal’s hit 9%.

Italy and Spain – the eurozone’s third and fourth largest economies – are those often referred to as too big to fail. So far, the eurozone countries and the European Central Bank have actively kept the bloc’s struggling economies afloat.

But their powers may be limited when it comes to Italy. The numbers are huge, and the political – and financial – capacity to continue supporting the bloc’s weak will face a mighty test should Italy stumble.” Read more.

Has Italy past the point of no return? – “The scandal-plagued prime minister will follow his Greek counterpart George Papandreou into early retirement as fears grow that Italy, the eurozone’s third largest economy, may default on its debt. Italy has failed to implement austerity measures designed to reduce its mammoth €1.9 trillion debt load — nearly six times that of Greece — and the cost to the country of borrowing more money to pay off that debt is spiraling out of control. While no one knows yet whether Italy will default, analysts say that the country is vastly too big to bail out — and that the consequences for the world economy of a default would be a disaster.” Read more.