if interest rates in italy continue to rise,  it will continue to compound a balance sheet problem for the italian banks.

as all of you know price goes opposite of interest rates.  so if interest rate go up,  then the price goes down.  this means that the bonds they hold are worth less.  this effects their "capitalization".   many banks in southern europe are undercapitalized.  they have too many bad loans already,  and not enough capital to cover.  as interest rates rise their capital shrinks,  and their balance sheet becomes weaker.  

anybody want to bet on whether rates will rise enough to crush most the big italian banks?  

if interest rates rise because growth is suddenly great,  then this is not a problem as long as the rate curve is not getting narrow.   if rates rise while  growth is stagnant,  and the curve is flat,  then it can be devastating.  

btw,  i expect that southern europe will go bankrupt within the next 20 years.  maybe sooner.