It is Italy’s parlous financial situation that has finally put Berlusconi on the ropes.
As he skated on increasingly thin political ice and failed to impress the markets with economic reform packages interest rates on Italy’s debt soared.
They have now reached levels that are causing deep concern about the survival of the euro zone with the currency bloc’s third largest economy getting perilously close to being unable to pay its debts.
Italy owes 1.9 trillion euros. Yields on its bonds that have to be paid back in ten years hit 6.74 percent at one stage on Tuesday. And next year it will have to borrow three hundred billion euros.
James Walston, Professor of Politics, American University of Rome explained: “Italy’s private debt is not bad, its public debt is desperate. If they can’t pay for the public debt then they will pay higher taxes and the real possibility of default, unless measures can be put through to show that the Italians are facing it.”
The European Central Bank has been buying Italian government bonds by the billions to try and keep a lid on Rome’s borrowing costs — obviously without success.
And analysts say if its interest rates do not come down soon that high cost of borrowing will cancel out the budget savings from Italy’s painful austerity programme.