What happens next? The scenarios for Italy

Markets have pushed Italy and the eurozone towards what many investors see as a tipping point, but European Union officials on Wednesday said they were waiting for Italy to decide on a new government rather than planning emergency measures to turn the tide.
The prospect of a technocratic government taking over quickly from a teetering Silvio Berlusconi to push through long-demanded economic reforms – coupled with returning order to Greece and beefing up their €440bn rescue fund – presented the best hope for turning around a darkening crisis.
But if current plans do not work, the scenarios quickly become far more complicated:

1. The current plan: cut debt and spur growth now
EU officials and the majority of independent analysts agree that Italy’s economic fundamentals, while not rosy, are far better than those of Greece or other eurozone countries in full-scale bail-outs. Italy’s debt levels are high, but its annual deficits are small, its banking sector is sound, and its overall economy big and diversified.

2. Provide a precautionary line of credit
This was offered to Mr Berlusconi at the Group of 20 summit in Cannes last week, but was turned down. Such a line of credit would likely come from the IMF, something it does with regularity for countries that are solvent but struggling to raise cash. Last month, the EFSF was given similar powers and there is now talk it could step into the breach.

3. If all else fails: a full-scale bail-out
If Italy proves unable to return to the public markets with a credit line, the next step would be a bail-out that would take Rome out of the bond market altogether.

4. Or, a takeover by the European Central Bank
Some eurozone governments, led by France, have argued that the ECB must become the zone’s lender of last resort in order to stop the run on peripheral sovereign bonds. If it were to guarantee all Italian debt, the ECB’s unlimited firepower – it can literally print money – could give it the power to buy every Italian bond and ensure Rome could borrow at low rates for the foreseeable future.

But some worry that even the bottomless pockets of the ECB may not be enough to stop the panic if it were to grip the €1,900bn Italian bond market by the throat.

Fonte: Financial Times