As Spain became the fourth euro zone country to accept an international bailout, investors turned their nervous gaze Monday to Italy, selling Italian stocks and bonds on worries that Rome could be the next victim of Europe’s financial infection.
Italian officials are now privately expressing concern that even a €100 billion, or $125 billion, bailout for Spanish banks may not stop the troubles from spreading.
“It seems likely that the risk of contagion to Italy may become real, especially if the situation worsens in Spain and Greece,” said one official who spoke anonymously, citing the sensitivity of the situation. “It’s very worrisome.”
Even the Italian prime minister, Mario Monti, the vaunted European technocrat who came to office in an emergency after the euro crisis forced out Silvio Berlusconi last November, has begun to acknowledge the dangers posed to his country’s too-big-to-fail €1.56 trillion, or $1.95 trillion, economy. The big fear is that Italy cannot grow its way out of a recession fast enough to pay a mountainous national debt.
“There is a permanent risk of contagion,” Mr. Monti told an economics conference near Venice over the weekend, speaking by telephone. “That is why strengthening the euro zone is of collective interest.”
Investor euphoria over the Spanish bailout deal Monday morning was short-lived, giving way to an essentially flat day on many European stock markets. But Italy’s benchmark index was the Continent’s worst performer, ending down 2.8 percent.
Italian 10-year government bonds dropped in value for a fourth straight trading session. The yield — a measure of the government’s borrowing costs and of investors’ perception of risk — climbed 0.26 percentage point Monday to just over 6 percent, and at one point reached 6.03 percent, the highest level since January.
“There’s no doubt contagion will come to Italy,” Daniele Sottile, a managing partner at the financial advisers Vitale & Associati in Milan, said at the same conference that Mr. Monti addressed. “It’s proof that the European mechanisms designed to stop the crisis are not working.”
Sergio Marchionne, the chief executive of Fiat and Chrysler, was more blunt at the conference, which was convened by the Council for the United States and Italy on an island near Venice. “Somebody better do something before we get to the point of no return,” he said.
Mr. Monti, a former European commissioner for internal markets and for competition, has a reputation as a savvy leader trusted by international officials. But he faces a host of problems at home.
The pressing issues include the fact that Italy, with the third-largest euro zone economy, after those of Germany and France, will have to shoulder a large portion of the bailout bill, even as Rome grapples with its own sharp economic downturn.
Because Italy does not have enough economic growth to generate the money itself, the government will have to borrow it at high interest rates, adding to an already heaving debt load.
Few question Mr. Monti’s competence: Within the first six weeks of coming to power, he managed to pass more economic measures than Italy had seen in a decade, including increasing the retirement age, raising property taxes, simplifying the operation of government agencies and going after tax evaders. And still pending is his legislative slate of economic changes meant to revitalize growth, including an effort to overhaul Italy’s notoriously inflexible labor rules.
But his government is also shackled by the legacy of decades of political unwillingness to make painful changes.
As a result, “market attention looks set to shift to Italy,” Commerzbank analysts wrote Monday in a note to clients. Combined with weak growth, they said, the difficulties Mr. Monti faces in getting lawmakers to implement economic change means “it may be just a matter of time before Italy also seeks help.”
In fact, Mr. Monti faces daunting, perhaps insurmountable, obstacles embedded in the very fabric of Italian politics and society.
As he fields frequent euro crisis phone calls from President Barack Obama and Chancellor Angela Merkel, he is under mounting criticism within his own country. Italy’s dominant political parties, the center-right People of Liberty and the center-left Democratic Party, are participating in Mr. Monti’s government, but are terrified of being too closely associated with the tough measures he has already put in place and the others he is still pushing for. Some opposition parties have been pressing for new elections to be held before Mr. Monti’s term ends in 2013.
Italy’s dominant political parties, the center-right People of Liberty and the center-left Democratic Party, are participating in Mr. Monti’s government but are averse to being too closely associated with the tough measures he has already put in place and the others he is still pushing for. Some opposition parties have been pressing for new elections to be held before Mr. Monti’s term ends in 2013.
Correction: June 11, 2012
An earlier version of this article misstated the size of the Italian economy, both in real terms and in relation to other European economies. Its gross domestic product is roughly $2 trillion (€1.6 trillion) a year, not €2 trillion, and it is the third-largest in the euro zone, not in Europe.