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Italy's Debt Leaves Other Countries Exposed

Workers march in front of the Ancient Colosseum against the government's economic austerity measures, in central Rome, on September 6, 2011.

Another rough day for the markets as Italian bond yields reached record highs and doubts about Greece's new government sent shock waves around the globe. U.S. markets were down all day and plunged in afternoon trading. The yield on Italian bonds rose over 7 percent on growing concern that Italy is unable to repay its debt. Add to that investors concern it could take months for a new government in Italy to get settled. Italy is one of the largest economies in the world and it's debt is leaving other countries exposed.

I talked with Ellen Zentner, a senior U.S. economist at Nomura Securities. She says there's much more to worry about with Italy than with Greece. Italy's economy is one of the largest in Europe and other countries are exposed to its debt. Zentner says very soon all eyes will be on France which owns about a third of exposed to Italy's debt.

Most analysts say one possibility is that the European Central Bank will step in and start some quantitative easing such as the Federal Reserve did here in the U.S. Zentner says the Germans are standing in the way. She says you can't blame them for growing tired of their role as the "mother" of Europe, the one left cleaning up the mess. Of course, Germany also has some exposure to Italian debt, so the question becomes whether they'll be shooting themselves in the foot if they wait to help.

Back in late October when European leaders announced they had a plan to rescue the euro zone, it was understood that the road from there to stability would be rough. The question now is how much more will have to fall away for the path to become clear?


Also on the show today, the Marketplace Daily Pulse is down today on news that times are so tough for some residents in Maine that local hero - novelist Stephen King - is stepping in to help pay heating bills.

About the author

David Brancaccio is the host of Marketplace Morning Report. Follow David on Twitter @DavidBrancaccio

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