Italy's economic risks re-enter the limelight

With panic swirling in global markets about China's alleged liquidity problems, it's easy to forget about the other looming catastrophe on the other side of the planet: Europe. Despite losing the limelight, the European Union is still beset on all sides by problems, whether it's surging youth unemployment or lingering concerns about the finances of governments like Greece, Spain and, more recently, Italy.

Italy has been in a state of troubled governance since an election earlier this year left it with a barely functioning legislature. While a center-left/center-right coalition has been cobbled together – involving none other than ex-Prime Minister Silvio Berlusconi – a robust opposition and rising fears about the nation's economic future could unravel the already fragile arrangement.

The situation was made that much worse by a recent disclosure by an official from Mediobanca, Italy's second-largest bank. A letter was sent to the firm's top clients that outlined the potential need for an international bailout, emphasizing that the Mediobanca's "index of solvency risk" – a measurement of how costly financing will be – is climbing steadily.

According to The Telegraph, a U.K.-based news source, the situation has always been troubling. Italy's 2.1 trillion euro debt portfolio is one of the largest in the world, compared to the relative size of its economy, and efforts to rein in the public deficit have only produced more hardship for the citizenry. At this juncture, it remains unclear how Italy can go about growing out of its current financial quagmire.

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