yes I understand that argument, 75% of Italy's bonds are long term maturity
From the IMF in July: (http://www.imf.org/external/pubs/ft/scr/2011/cr11173.pdf)
Despite its size, Italy’s public debt is relatively resilient to interest rate shocks. Of the total gross general government debt: (i) over 75 percent is long-term debt; (ii) close to 85 percent has an initial maturity of over 1 year; and (iii) less than 12 percent is at variable rates. The authorities extended the average maturity of debt from 5.7 years in 2000 to 7.2 years as of end-March 2011.
but Italys debt , the ECB and the Italian and German leadership are not acting like they believe the IMF position
Italy's debt is sustainable if Italy must pay 4%/year in interest to borrow. If Italy must pay 7%/year in interest its debt is not sustainable: the Italian government must then come cup with an extra €60bn/year to appease the bondholders--that's an extra 4.3% of GDP in taxes.
And if nothing is done to convince bondholders that extra 4.3% of GDP tax increase dedicated to compensating them for default risk is coming, next year what will be needed will be not 4.3% of GDP but 8.6% of GDP.
Even if the ECB can spring into crazy bond buying mode to save Italy, does it really matter? With all the drama going on in Athens and Rome, no one has mentioned that the French-German spreads have been widening significantly. Correct me if I'm wrong but if French bonds lose their safe-haven status, doesn't the most recent "solution" to backstop the EFSF fall apart anyways?
With the move towards appointed "technocrat" governments pushed onto Italy and Greece, I get the feeling that they're being set up for a social revolt. At least the PM's of two weeks ago were elected by the people and had some sort of legitimacy to their austerity measures, even if wrongheaded. What kinds of strikes and unrest are going to occur when people the ECB/Germans handpicked start raising taxes and imposing hardships on the disenfranchised citizenry.
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