Masked behind the sweeping hills of Tuscany and Rome's romantic Via Veneto is a debt crisis that Italy can't seem to shake.
Adding to Italy's plight of over indebtedness are rising borrowing costs. The yield on 10-year Italian bonds now hovers around 7%, which is the same level that pushed Greece, Portugal, and Ireland to seek financial bailouts.
In November, the yield on 10-year Italian bonds spiked to a record of 7.48%, despite the European Central Bank's plan to backstop Italian bonds.
What's going on? Simply put, the credit market is penalizing Italy with higher borrowing costs to compensate for rising credit risk.
How will this impact the euro and where will the next big move be?
An Important Component
Unlike Greece or Portugal, Italy plays a key role in the euro's survival or demise. Italy has the third largest economy but it also has the dubious title of the second most indebted eurozone country, after Greece. Around 53 billion euros in Italian debt must be repaid in the first quarter of 2012.
The plan to dig Italy out of its 1.9 trillion euro sinkhole has angered its citizens. Reductions in pension benefits and tax increases are seen as the solution by politicians. But unfortunately, upset citizens aren't a good formula for economic productivity.
The Italian government projects 0.6% economic growth in 2011 and a 0.4% pullback in 2012. Tax hikes and pension reform are pushing Italy deeper into recession.
One Politician Later
For most of the year, Silvio Berlusconi ran the show in Italy. He kept promising his eurozone comrades that Italy's debt spiral was not out of control.
Although none of that was true, he became Italy's longest serving post-war prime minister, serving for 17 years. And with a net worth in the vicinity of $6.2 billion, he is one of Italy's richest men.
The public spotlight isn't the only place Berlusconi made a name for himself.
