Italy's cost of borrowing slipped back below the 7% mark on Thursday morning after hitting record highs on Wednesday, fuelling concerns that the eurozone crisis could spiral out of control, with contagion spreading across the global banking sector.
An Italian bond auction on Thursday saw yields fall back to 6.9% on ten-year debt. The yield is the interest rate that the country must pay on its borrowing. The higher it is, the more investors demand in return for carrying the risk of financing the country.
The 7% number is seen as a critical watershed because it was the level at which Greece, Ireland and Portugal needed to ask for international bailouts. Whether the country's debt is above or below that mark, the cost of servicing its debt - currently at 120% of its gross domestic product (GDP) - is prohibitively high.
The Italian economy is not growing quickly enough for tax returns and other government revenues to keep up both interest payments and public expenditure. The government had committed to spending cuts which would in theory have seen it return to solvency and guarantee that that could pay off its debts.
The country has continued to borrow to ensure that it has enough cash flow to pay off loans that are maturing, a process known as "rolling over" its debts. The country is expected to have to roll over around €300bn in debt in the near term, and with yields rising, its solvency is increasingly in doubt.
Political turmoil has left the markets unconvinced that those government cuts will be made on time, giving them a further reason to be concerned about their investments in Italian debt.
These two things feed into each other - fear over the government's ability to pay off its debts leads to investors demanding higher interest rates, making the debts harder to pay off.
International bailouts are supposed to end this downward spiral by resolving the short term funding needs and giving countries breathing room to reform their economies. They come with strict and often painful conditions on the level of reforms.
Bailing out Greece, Ireland and Portugal was a major milestone in the European crisis, as it demonstrated that the European Union and eurozone members were willing to break with convention in order to support weaker partners. However, all three countries were relatively small compared with the economic giants of Germany and France.
Italy, by contrast, is the third largest economy in the eurozone and the fourth in the EU. Bailing it out would take an enormous amount of money. That money is not available.
In response to the unfolding crisis, eurozone leaders over the summer created a vehicle - the European Financial Stability Facility (EFSF) - that would be able to buy bonds and shore up weaker economies. It was then expanded to include the ability to put money into the European banking sector, as there were growing concerns that, should peripheral countries default on their debts, the losses at banks would be so great that they would themselves become either insolvent or so cash poor that they would stop lending to businesses and consumers, plunging economies into recession.
By October, it was clear that the EFSF did not have the capital needed to deal with the scale of the evolving problem. In the Brussels summit, held on October 26, it was agreed that the fund would need to be increased, with financial engineering used to boost its firepower, and a separate special investment vehicle created. EU leaders went to the G20 the following week to try to fill that second vehicle with capital from cash-rich emerging economies, including China and Brazil. That capital was not forthcoming, in part due to the decision by Greek Prime Minister George Papandreou to call a referendum on the Greek portion of the deal, highlighting further divisions within eurozone politics.
The delay might not have been critical, had the markets not began to focus on the increasingly dysfunctional Italian government a week later. Berlusconi's weakening coalition was seen as incapable of pushing through unpopular austerity measures and bring the country back on track towards long-term solvency.
There have only been two things holding the markets back from giving up on Italy - the belief that an economy of that scale and sophistication was capable of pushing through reforms, and the belief that if it failed to do so it could get additional support in the form of a bailout. In either scenario, bond holders would get paid.
With confidence in the former faltering, the absence of a big enough bailout mechanism came into focus. With neither there, markets had to countenance the possibility - however remote - that Italy might have to look at some kind of write-down on its debts, or may even default.
The scale of that event would be unprecedented in recent market history. Italy's bonds have been held as relatively high quality, low risk investments for years by banks, pension funds, insurance companies and governments. Their total value is enormous, and even a small "haircut" would wipe billions of dollars off balance sheets around the world. Banks would struggle to meet the levels of redemptions, which would rise as depositors withdraw money from institutions that would appear on the verge of failure. Governments would need to bailout banks again, putting enormous pressure on state finances. The "contagion" would likely spread to developed markets worldwide, risking recession.