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Wall Street markets are taking a nosedive this afternoon as the world struggles to deal with the growing European debt crisis. For the past few weeks it was Greece that caused world markets to tumble, but today it’s Italy.

The Economic Times reports

Italian bond yields shot up to 7.502 per cent, a new high since the euro was introduced in 1999, as investors unloaded the debt after a clearing house increased margin calls. Prime Minister Silvio Berlusconi’s promise to resign failed to persuade markets the country would deliver on economic reforms. 

“We just added another layer of uncertainty. The issue with Italy brings the region closer to a broader negative scenario and raises more concerns about a financial crisis,” said Bob Pavlik, the chief market strategist at Banyan Partners in New York

Earlier this year Portugal and Ireland both sought bailouts from the members of the European Union (EU), and member countries just worked out a plan to save Greece from peril. But Italy–who has the eurozone’s third largest economy–cannot easily be bailed out. It’s just too big.

CNN notes:

“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.”

“The numbers are brutal. Italy’s economy makes up 17% of the eurozone. Combined, Greece, Ireland and Portugal – the countries currently living off Europe’s bailout fund and the International Monetary Fund – make up less than 6%.”

Italy’s Prime Minister, Silvio Berlusconi, is set to step down, but only after his country passes a new budget. Many have questioned his decision to delay his resignation and blame him for the current turmoil.

So what happens if Italy isn’t able to get its economic house in order? Well, letting Italy fail would plunge the Euro and the world markets into chaos. And economist say that the fragile world economy just can’t take the risk.

Have you been keeping up with the world financial markets and the  European debt crisis? What do you think?

 

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