The bond markets turned on Italy during the first weekend of July 2011
as part of a wider loss of confidence in European efforts to manage the
sovereign debt crisis. On Friday, 1 July, the difference—or “spread”—
between Italian and German 10-year government bond yields was 178
basis points or 1.78 percent. The following Monday, 4 July, it was up
to 183 basis points and rising. By Friday, 8 July, the spread was 237
basis points. It remained above that level to the end of the year.1 The
center-right government led by Silvio Berlusconi attempted to head
off this change in sentiment by pushing through successive reform
packages to promote fiscal consolidation and stimulate growth. Bond
traders consistently shrugged off these actions as too little, too late.
Ultimately, the pressure became so great that the center-right coalition
fractured and President Giorgio Napolitano replaced Berlusconi’s
Cabinet with a technocratic government headed by Mario Monti. Even
this, however, was not enough to appease the markets, and the year
ended with Italian bond yields again rising..