Although the disintegration of the single currency is still considered highly unlikely, the reports were last night deemed serious enough to prompt European Commission (EC) President Jose Manuel Barroso to issue a stark warning about the dangers of such a move.
A collapse of investor confidence in the eurozone’s third-biggest economy sent interest rates in Italy above the critical 7% mark on Wednesday – the highest it has been in the country since the launch of the euro in 1999 and the level that triggered bailouts in Portugal, Greece and Ireland.
The European Central Bank (ECB), which had already been buying up Italian bonds in large amounts, may now be required to step up its purchasing action.
EU officials told more than one news agency that policymakers in Paris, Berlin and Brussels had discussed the possibility of one or more countries leaving the eurozone, with the more stable nations remaining united.
“France and Germany have had intense consultations on this issue over the last months, at all levels,” a source in Brussels told Reuters.
EC President Barroso issued a fresh call for the EU to “unite or face irrelevance” in the face of the mounting economic crisis in Italy.
In a comment piece this morning The Guardian suggested the most likely bail out route for Italy would be a dramatic increase in the European Central Bank’s bond buying programme to hold down the cost of bond yields. The ECB has been buying Italian and Spanish debt since August.
Another option would eb the creation of a two-speed Europe, where Italy and Greece – and possibly Portugal and Spain are ejected from the Euro. This would allow them to devalue, return to their old currencies and regain competitiveness, it said.
