Last week's Group of 20 summit in southern France blazed with concern about the Greek tragedy. Behind closed doors, though, were signs of deepening concern about shielding Italy, next in line, from the debt contagion.
The world's eighth-biggest economy suffers, like Greece, from a debt burden, chronic tax avoidance and a rickety political system that has thrown up the cartoonish 75-year-old media tycoon, Silvio Berlusconi, for Prime Minister.
Loan default would almost certainly destroy the euro and worsen the world's financial crisis by several orders of magnitude.
Behind the G20 scenes at Cannes, the International Monetary Fund (IMF) offered a precautionary loan of €44 billion to Italy after its borrowing costs on the commercial market scaled new heights, the European edition of the Wall Street Journal reported.
Italy had to pledge record interest rates of 6.404 per cent for 10-year bonds, a whopping 0.404 points above the 6.0 per cent that economists say cannot be sustained for long. The gap with German bonds, which are viewed as a safe haven for investors, widened to 4.57 percentage points.
Italy's long-term borrowing last surged in August. The additional costs forced Berlusconi to push through austerity cuts worth billions of euros and the European Central Bank had to prop up the bond market.
Berlusconi said he had turned down an offer of financial aid, which he did not identify, declaring, "I don't think we need that kind of help."
The last time a Gr oup of Eight (G8) economy borrowed IMF funds was in 1976, when Britain begged nearly US$4 billion. But in a humiliating sign of the huge credibility gap he and his country face, Berlusconi said Italy had asked the IMF to vet its economic reforms.
"Italy considers it does not need the money and Italy considers, rightly so in my view, that it needs the credibility of an expert independent third party to actually verify that their promises are delivered upon," IMF managing director Christine Lagarde told the BBC.
"We will check that what Italy has promised, Italy is delivering. And if it is not delivering, I will say so."
Markets are deeply sceptical about Berlusconi's willingness to push through austerity packages that, officially, will eliminate the budget deficit by 2013.
A week earlier, Berlusconi pledged to raise the pension age to 67, sell state assets, reform labour laws and boost competition in law, medicine and other closed shops.
European Commission monitors arrive in Italy next week and IMF officials are due by the end of the month, a European source in Cannes says. Italy will produce quarterly reports for outside scrutiny.
Berlusconi faces rising anger within his People of Freedom party over his handling of the economic crisis. The Premier, facing an approval rating of just 22 per cent, lashed party defectors as "traitors" in his warning to the centre-left opposition not to try to topple his Government. A deadline looms later this month for a formal confidence motion to pass the budget amendments - yet another moment for Europe to hold its breath.
