As if European leaders needed any more motivation to deal with the mounting debt crisis, one fear stands above all others: Italy may be the next Greece, and if it is, united Europe may not have a future.
Even if the Italian economy rests on more solid fundamentals than Greece’s, its bloated debt load makes the slightest increase in borrowing rates painful, and in the current speculative frenzy, dangerous.
On Wednesday, with the yield on Italy’s 10-year bonds rising to 6.19 percent — close to the levels that prompted other nations to seek bailouts — Italian officials held a series of emergency meetings, hoping to add substance to promises that could forestall the country from being dragged deeper into the widening European debt crisis.
“If Italy is under attack, then Merkel will really have trouble sleeping at night,” said Almut Möller, a European Union expert at the German Council on Foreign Relations, referring to Chancellor Angela Merkel of Germany, the euro currency zone’s de facto leader in the debt crisis.
“Italy would bring to the table a whole different dimension,” Ms. Möller said, “and some tough questions being asked about whether this union is sustainable.”
Unlike troubled countries like Portugal, Ireland and even Spain, Italy is a founding member of the organizations that became the European Union, and part of what is considered the core of the group. Compared with Greece’s more manageable obligations, Italy’s debt is roughly $2.5 trillion — more than even Germany could absorb.
Far from reassuring investors, Italy’s prime minister, Silvio Berlusconi, 75, has come to be seen by his critics as an impediment to governing the country, a one-man political sideshow who is facing trial on charges of tax fraud, corruption and paying for sex with a minor. The fragmented opposition has been unable to gain traction.
At home and abroad, there is a growing feeling that a tidal wave is coming and that Italian politicians are squabbling over sand castles.
Pressure has mounted on Mr. Berlusconi to push through vital economic changes as a way to calm panicky investors. The country’s president, Giorgio Napolitano, met with leaders from the political opposition on Wednesday, exploring various options if Mr. Berlusconi was not up to the task.
“This is basically unprecedented,” said Mario Pianta, a professor of economics at the University of Urbino and an opponent of Mr. Berlusconi’s economic policies. “The Berlusconi government has been in a position of denial, postponing action, quarrelling about the need for intervention, but the attack coming from financial markets is pushing Italy toward the brink.”
Mr. Berlusconi has eked out narrow victories in critical no-confidence votes because, for the most part, there was no realistic alternative.
Part of the problem in Italy has been a severe disconnect between the way the country is viewed by outsiders and the way Italians view themselves. To investors, Italy is just another country with high debt and political gridlock. But Italians, especially in the wealthy north, see a different picture: a manageable projected deficit of 3.9 percent of the gross domestic product for 2011 and dropping; an economy that is growing, albeit anemically; and a manufacturing base and industrial capacity far beyond Greece’s.
But the painful increases in financing costs appear to have focused the minds of leading politicians. A cabinet statement released after the emergency meetings on Wednesday said that a series of “urgent measures to support the Italian economy” had been examined and that the cabinet had agreed to fast-track changes previously proposed by Mr. Berlusconi by attaching them to an existing state spending bill as an amendment.
Last month, the prime minister promised in a letter to European officials that he would take steps to address the debt crisis, including reforms to the pension system and labor market, as well as the sale of public assets.
Until now, markets have reacted tepidly to the proposed changes — expressing what critics have said were open reservations about the government’s ability to carry them out — and that has kept the pressure on Italy high, prompting widespread calls for Mr. Berlusconi to act more decisively, or step aside.
“A country adrift. This is the impression that we give to Europe and to the markets that continue to punish us,” wrote Ferruccio de Bortoli, editor in chief of Corriere della Sera, in a front-page editorial on Wednesday that took both the government and the opposition to task for putting internal political calculations ahead of the national good.
“The Italy that works and does its duty does not merit this,” he concluded.
In a sense, Italy’s inability to react quickly and decisively to solve its problems mirrors the troubles of Europe as a whole. Whether it was the Finnish demand for collateral from Greece, Slovak opposition to expanding the Europe-wide rescue fund or the possibility of a referendum in Greece, with 27 members in the European Union and a group of 17 who use the euro, sluggish institutions have had trouble keeping pace.
“In the financial markets everything operates in just a click,” said Ms. Möller, the European Union expert. “The old lady of democracy, multiplied by 27, is really struggling with the speed of globalized financial markets.”