Reuters is now reporting that the ECB may stop purchasing Italian bonds. Given that the Italian 10-year yields spiked to 6.3% even when the ECB was buying these bonds, this would be a very negative sign for Italy and the rest of the EU nations. Interest over 6% is unsustainable for Italy's debt and is now in the danger zone.
Markets on Monday will probably begin shifting focus from Greece to Italy. Unfortunately, since Berlusconi appears powerless to implement real austerity in Italy's government, the EUR will probably take a hit and volatility will remain. With the EFSF now lacking firepower (IMF won't contribute and no other G-20 nations are stepping up), one can't help but wonder where the funds for the EFSF are going to come from. No wonder no one wants to buy EFSF bonds... the EFSF could end up broke. So much for the leveraged EFSF part of the grand comprehensive plan.
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