Europe's leaders, policymakers and bond vigilantes are engaged in a fatal three-way game of brinkmanship. The showdown will see either careers bite the dust or the end of the euro. Somehow, though, the ultimate price will be paid.
And, with €9bn (£7.8bn) of eurozone government debt held in the bond markets, you need to be brave to bet against the vigilantes.
Last week the euro hit crisis point. Silvio Berlusconi was forced into a shame-faced climbdown over his handling of Italy's economy. A €48bn austerity programme will be front-loaded, asset sales accelerated and the country's outdated labour practices liberalised. The measures will mean the public feels the pain of austerity before Italy's elections in 2013.
Victory for the vigilantes. But victory, too, for the European Central Bank (ECB) and Germany's hardliners who have been pressing Italy to move faster.
Italy has been in the gunsights of the vigilantes since mid-June, shortly after Standard & Poor's put its credit rating on watch. At that point, its benchmark 10-year bond was at 4.8pc and beginning a slow, precipitous climb. First, Berlusconi started an ill-fated game of chicken with the markets – by launching open warfare against his fiscally conservative finance minister Giulio Tremonti.
Tremonti, it seemed, was an obstacle to more electorate-cheering deficit spending. Berlusconi blinked and Tremonti stayed. (more)