MercoPress. South Atlantic News Agency

Italy at the point where Greece, Ireland and Portugal cracked; global markets on the edge

President Napolitano said reforms would be passed and PM Berlusconi would resign “within a few days”

Stock markets in Asia opened sharply lower on Thursday after Italy's record-high cost of borrowing renewed fears over the Euro-zone crisis. Japan's Nikkei index fell 2.3%, Australia's ASX was down 2.8% while South Korea's Kospi opened 2.6% lower.

The falls in Asian markets follow losses in US markets. The Dow Jones ended 3.2% down; Nasdaq, 3.88% and in Europe the FTSE 100 lost 1.92%; Germany’s DAX, 2.21%; CACA 40, 2.17% and in Italy the plunge was 3.8%.

The cost of borrowing on Italian government bonds jumped to 7% on Wednesday, a level considered unsustainable by economists. The high interest rate means that if Italy were to borrow money today, with the aim of paying it back in 10 years, it would have to pay an interest of 7%.

It is the highest since the Euro was founded in 1999. In comparison, Germany's implied cost of borrowing for 10 years is 1.73%.

In a bid to calm markets, President Giorgio Napolitano said reforms would be passed and Mr Berlusconi would resign “within a few days”.

The 7% level is widely viewed as unsustainable and was the point at which Portugal, Greece and the Irish Republic were forced to seek a bailout.

They are even higher on one- and two-year Italian debt, meaning that it is considered even less likely that Italy will pay back what it owes immediately than in a decade's time. One-year Italian debt is now yielding more than 8%. An auction of the debt is due to take place on Thursday.

Italy has a low growth rate, which means it would struggle to repay its debt at these rates. Analysts said some actions need to be taken in Italy in order to calm markets.

Shares of banks in both Japan and Australia were hit particularly hard. In Tokyo, Sumitomo Mitsui Financial Group tumbled 5.3%, while Mizuho Financial group fell 3.8%. In Sydney, Westpac Banking Corporation dropped 3.6%, to its lowest level in a month.

Economists fear even when the Italian situation can be managed a recession is inevitable in the Euro zone and the contagion could spread to the banking system.