EU calls emergency meeting as debt crisis stalks Italy

European Council President Herman Van Rompuy has called an emergency meeting of top officials dealing with the euro zone debt crisis for Monday morning, reflecting concern that the crisis could spread to Italy, the region's third largest economy.
European Central Bank President Jean-Claude Trichet will attend the meeting along with Jean-Claude Juncker, chairman of the region's finance ministers, European Commission President Jose Manuel Barroso and Olli Rehn, the economic and monetary affairs commissioner, three official sources told Reuters.
Van Rompuy's spokesman Dirk De Backer said: "It's a coordination, not a crisis meeting." He added that Italy would not be on the agenda and declined to say what would be discussed.
However, two official sources told Reuters that the situation in Italy would be discussed. The talks were organised after a sharp sell-off in Italian assets on Friday, which has increased fears that Italy, with the highest sovereign debt ratio relative to its economy in the euro zone after Greece, could be next to suffer in the crisis. A second international bailout of Greece will also be discussed, the sources said.
The spread of the Italian 10-year government bond yield over benchmark German Bunds hit euro lifetime highs around 2.45 percentage points on Friday, raising the Italian yield to 5.28%, close to the 5.5-5.7% area which some bankers think could start putting heavy pressure on Italy's finances.
Shares in Italy's biggest bank, Unicredit Spa , fell 7.9% on Friday, partly because of worries about the results of stress tests of the health of European banks that will be released on July 15. The leading Italian stock index sank 3.5%.
The market pressure is due partly to Italy's high sovereign debt and sluggish economy, but also to concern that Prime Minister Silvio Berlusconi may be trying to undermine and even push out Finance Minister Giulio Tremonti, who has promoted deep spending cuts to control the budget deficit.
Monday's emergency meeting will precede a previously scheduled gathering of the euro zone's 17 finance ministers to discuss how to secure a contribution of private sector investors to the second bailout of Greece, as well as the results of the stress tests of 91 European banks.
Greece is already receiving 110 bln euros ($157 bln) of international loans under a rescue scheme launched in May last year but this has failed to change market expectations that it will eventually default on its debt.
Senior euro zone officials worry that progress towards a second Greek bailout, which would also total around 110 bln euros and aim to fund the country into late 2014, is not being made quickly enough and that the delay is poisoning investors' confidence in weak economies around the region.
German officials insist they too want to put together the second Greek bailout as quickly as possible, but the private sector's contribution is proving to be a major sticking point.
Germany, the Netherlands, Austria and Finland are determined that banks, insurers and other private holders of Greek government bonds should bear some of the costs of helping Athens. But more than two weeks of negotiations with bankers represented by the Institute of International Finance (IIF), a lobby group, have made next to no progress on agreeing a formula acceptable to all sides.
Since the euro zone's debt crisis erupted last year, the region's rich governments have aimed to limit it to Greece, Ireland and Portugal, which have so far signed up to bailouts totalling 273 bln euros — a sum that is small compared to the financial resources of the zone as a whole.
Spain, traditionally seen as the next potential domino in the crisis, has managed to retain its access to market funding through fiscal reforms. But because of the large sizes of the Spanish and Italian economies, pressure on the euro zone would increase dramatically if those countries eventually needed financial assistance.
Private analysts have estimated a three-year bailout of Spain, based on its projected gross issuance of medium- and long-term debt in 2011, might cost some 300 bln euros — excluding any additional money for cleaning up Spain's banks. A three-year rescue of Italy could cost twice that.