Europe’s Debt Plague Spreads to Italy

Italy, long considered too big to fail, now looms as the Continent’s biggest possible failure. Amid indecision in Brussels over Greece’s woes and squabbling in Prime Minister Silvio Berlusconi’s Cabinet, Italy’s bonds soared to their highest yields since the euro’s introduction, and its stock market hit a two-year low as investors bet that Europe’s biggest debtor will struggle to pay its bills.

With markets jittery over results of European bank stress tests due on July 15, UniCredit, Intesa Sanpaolo, and other Italian banks have seen their shares suffer. On July 12, Milan trading in UniCredit was suspended after the stock plunged 7 percent. UniCredit later pared its losses, and Bank of Italy Governor Mario Draghi—set to take over as president of the European Central Bank in October—said on July 13 that he was “certain” Italian lenders would pass the tests.