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Italy: Too Big to Fail, Too Big to Save?
CNBC.com | November 07, 2011 | 02:54 AM EST

Italy's economic problems took center stage Monday as its government, led by increasingly threatened Prime Minister Silvio Berlusconi, faced yet another key vote.

The health of the euro zone's third-largest economy has come into focus despite Berlusconi accepting IMF monitoring and surviving several confidence votes in recent months.

Italy's size makes the potential consequences if it were to fail more wide-ranging than the much smaller Greece.

"Italy has much more systemic implications," Thanos Vamvakidis, Head of European G10 FX Strategy, BofA Merrill Lynch Global Research, told CNBC Monday.

"It's too big to fail, too big to save."

The problems facing Italy include the euro zone's second-highest debt-to-GDP ratio, and the lack of a credible alternative to Berlusconi's government.

Italian MPs will vote Tuesday on the country's public finances, with a number of rebel MPs from Berlusconi's party threatening to vote against the government in protest at the way it has managed the country's finances.

Yields on Italian 10-year bonds surged last week, and are now dangerously close to the unsustainable 7 percent level. Other euro zone countries such as Portugal and Ireland had to seek bailouts after their yields rose to over 7 percent.

"The markets don't believe Berlusconi," said Vamvakadis.

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