European Council President Herman Van Rompuy addresses the European Parliament, on the conclusions of last week's European Union leaders summit, in Brussels June 28, 2011. 
 
 BRUSSELS European Council President Herman Van Rompuy has called an emergency meeting of top officials dealing with the euro zone debt crisis for Monday morning, reflecting concern that the crisis could spread to Italy, the region's third largest economy. 
 
 European Central Bank President Jean-Claude Trichet will attend the meeting along with Jean-Claude Juncker, chairman of the region's finance ministers, European Commission President Jose Manuel Barroso and Olli Rehn, the economic and monetary affairs commissioner, three official sources told Reuters. 
 
 Van Rompuy's spokesman Dirk De Backer said: "It's a coordination, not a crisis meeting." He added that Italy would not be on the agenda and declined to say what would be discussed. 
 
 However, two official sources told Reuters that the situation in Italy would be discussed. The talks were organized after a sharp sell-off in Italian assets on Friday, which has increased fears that Italy, with the highest sovereign debt ratio relative to its economy in the euro zone after Greece, could be next to suffer in the crisis. A second international bailout of Greece will also be discussed, the sources said. 
 
 The spread of the Italian 10-year government bond yield over benchmark German Bunds hit euro lifetime highs around 2.45 percentage points on Friday, raising the Italian yield to 5.28 percent, close to the 5.5-5.7 percent area which some bankers think could start putting heavy pressure on Italy's finances. 
 
 Shares in Italy's biggest bank, Unicredit Spa, fell 7.9 percent on Friday, partly because of worries about the results of stress tests of the health of European banks that will be released on July 15. The leading Italian stock index sank 3.5 percent. 
 
 The market pressure is due partly to Italy's high sovereign debt and sluggish economy, but also to concern that Prime Minister Silvio Berlusconi may be trying to undermine and even push out Finance Minister Giulio Tremonti, who has promoted deep spending cuts to control the budget deficit. 
 
 "We can't go on for many more days like Friday," a senior ECB official said. "We're very worried about Italy." 
 
 Monday's emergency meeting will precede a previously scheduled gathering of the euro zone's 17 finance ministers to discuss how to secure a contribution of private sector investors to the second bailout of Greece, as well as the results of the stress tests of 91 European banks. 
 
 GREECE 
 
 Greece is already receiving 110 billion euros ($157 billion) of international loans under a rescue scheme launched in May last year but this has failed to change market expectations that it will eventually default on its debt. 
 
 Senior euro zone officials worry that progress toward a second Greek bailout, which would also total around 110 billion euros and aim to fund the country into late 2014, is not being made quickly enough and that the delay is poisoning investors' confidence in weak economies around the region. 
 
 "We need to move on this in the next couple of weeks. It's not a case of waiting until late August or early September as Germany is saying. That's too late and markets will make us pay for it," a top euro zone official told Reuters on Saturday. 
 
 German officials insist they too want to put together the second Greek bailout as quickly as possible, but the private sector's contribution is proving to be a major sticking point. 
 
 Germany, the Netherlands, Austria and Finland are determined that banks, insurers and other private holders of Greek government bonds should bear some of the costs of helping Athens. But more than two weeks of negotiations with bankers represented by the Institute of International Finance (IIF), a lobby group, have made next to no progress on agreeing a formula acceptable to all sides. 
 
 Initially talks focused on a complex French plan for private creditors to roll over up to 30 billion euros of Greek debt, buying new bonds as their existing ones matured. Around half of proceeds from Greek bonds maturing before the end of 2014 would be rolled over into very long-term debt while 20 percent would be put into a "guarantee fund" of AAA-rated securities. 
 
 But as that plan has floundered, Berlin has revived a proposal to swap Greek bonds for longer-dated debt that would extend maturities by seven years. Proposals to buy back Greek bonds and retire them have also been floated. 
 
 In a buy-back, the euro zone's bailout fund, the European Financial Stability Facility, might buy Greek bonds from the market, or the EFSF might lend Greece money to buy bonds. However, these schemes would require further changes to the EFSF's rules and would therefore have to go through national parliaments, an official source said. 
 
 SQUARE ONE 
 
 A senior euro zone official told Reuters on Friday that rather than progress being made in the talks with the IIF, as IIF managing director Charles Dallara has said, all sides were close to being "back to square one." 
 
 Dallara will attend the meeting of euro zone finance ministers in Brussels on Monday. 
 
 Since the euro zone's debt crisis erupted last year, the region's rich governments have aimed to limit it to Greece, Ireland and Portugal, which have so far signed up to bailouts totaling 273 billion euros -- a sum that is small compared to the financial resources of the zone as a whole. 
 
 Spain, traditionally seen as the next potential domino in the crisis, has managed to retain its access to market funding through fiscal reforms. But because of the large sizes of the Spanish and Italian economies, pressure on the euro zone would increase dramatically if those countries eventually needed financial assistance. 
 
 Private analysts have estimated a three-year bailout of Spain, based on its projected gross issuance of medium- and long-term debt in 2011, might cost some 300 billion euros -- excluding any additional money for cleaning up Spain's banks. A three-year rescue of Italy could cost twice that. 
 
 German newspaper Die Welt quoted an unnamed ECB source as saying on Sunday that the EFSF, which has a nominal size of 440 billion euros, was not large enough to protect Italy because it had not been designed to do that. 
 
 In Italy on Sunday, politicians and government officials scrambled to present a united front and defend Tremonti. Umberto Bossi, the powerful leader of Berlusconi's Northern League coalition allies, praised Tremonti for "listening to the markets." 
 
 "From tomorrow, we have the job of showing we are united and blocking the effort of speculators," said Paolo Bonaiuti, a government undersecretary and senior aide to Berlusconi. 
 
 "In the coming months we have 120-130 billion euros of bond issues to deal with, so we need cohesion and united intent; it'll take effort to show that the markets are overdoing it." 
 
 However, Berlusconi himself was silent over the weekend and canceled two appointments to speak, and it was not clear how long the appearance of consensus in the government over austerity plans would last. 
 
 One factor behind bond markets' growing instability is a sense that the euro zone's basic strategy for dealing with debt problems -- keeping countries afloat with emergency loans in the hope they can grow their way out of their debts within a few years -- is flawed. More radical action to cut the countries' debts or boost economic growth may be needed. 
 
 In Germany on Sunday, President Christian Wulff said Greece would need a lot longer to resolve its debt problems than many people in Europe were now acknowledging. 
 
 Wulff, a former leader in Chancellor Angela Merkel's conservative Christian Democrats and now Germany's ceremonial head of state, told ZDF television there was a need for "an overall concept" for resolving Europe's debt crisis. 
 
 "It can't be something that will suffice for a three-month period but rather has to offer solutions to the problem that will cover the next 10 to 15 years," Wulff said. 
 
 (Additional reporting by Francesca Landini in Milan and Gernot Heller in Berlin; Editing by Andrew Torchia) ||||| Investors were unnerved in part by evidence of a growing divide between the Italian prime minister, Silvio Berlusconi, and the finance minister, Giulio Tremonti, who has been praised for his handling of the economy during the financial crisis and for maintaining control of the budget deficit. 
 
 The euro zone has been shaken by the fiscal troubles of Greece, Portugal and Ireland, though their economies are relatively small. The Italian economy is more than twice the size of the combined economies of those three countries. If investors were to drive Italy’s borrowing costs to unsustainable levels, it could imperil the entire European monetary union. 
 
 Even without Italy, European officials have a big task in the coming days. They have reached an impasse of sorts on whether to include the private sector in a second Greek bailout, which is considered essential to controlling the crisis that has so far been limited to the smaller economies on the Continent. 
 
 Some officials now believe that any bailout plan involving a substantial but voluntary contribution from private investors in Greek debt would be declared a selective default by the bond rating agencies Moody’s, Standard & Poor’s and Fitch. The officials’ objectives of achieving a private sector contribution that is voluntary and substantial — but which is not judged a selective default — may not be possible. 
 
 If voluntary steps would cause such an event, these officials say, then more radical options may as well be considered, including requiring banks and other private investors to take part. 
 
 Speaking on Sunday at a conference in Aix-en-Provence, France, the president of the European Central Bank, Jean-Claude Trichet, said Europe was at the “epicenter” of a debt crisis that had to be of concern to the entire developed world. He urged euro zone officials to do the “maximum” in terms of governance reforms, Bloomberg News reported. He has also been adamant about keeping debt reduction by private investors out of any bailout plan. 
 
 The special session of top European officials is to start about 8:30 a.m. Monday, when a scheduled meeting between Mr. Van Rompuy and the president of the European Commission, José Manuel Barroso, will be expanded to include Mr. Trichet; the European commissioner for economic and monetary affairs, Olli Rehn; and Jean-Claude Juncker, the prime minister of Luxembourg, who presides over meetings of the so-called Eurogroup of finance ministers from the 17 countries that use the euro as their official currency. 
 
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 Vittorio Grilli, the director general of the Italian treasury, is also scheduled to attend. But Dirk De Backer, a spokesman for Mr. Van Rompuy, said Mr. Grilli would be there in his capacity as head of the euro zone’s Economic and Financial Committee and not to discuss his country’s economy. 
 
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 “There is absolutely no crisis meeting,” Mr. De Backer said. “This is a coordination meeting to prepare for the Eurogroup. It is not the aim or purpose to talk about Italy.” 
 
 Some officials played down the meeting, pointing out that Germany, which has the biggest economy in the European Union, would not be on hand and that Mr. Van Rompuy and Mr. Barroso would not take part in the later gathering of euro zone finance ministers. 
 
 Italy has a debt equal to 120 percent of annual gross domestic product, one of the highest in the euro zone. The market sell-off last week was spurred by tensions between Mr. Berlusconi and Mr. Tremonti, the long-serving finance minister whose tough-minded deficit approach has helped keep Italy from succumbing to the problems of Europe’s peripheral economies. 
 
 Last winter, investors drove Italy’s borrowing costs higher amid concerns about its high debt, but the attack was short-lived. Fighting to keep the deficit under control, Mr. Tremonti has been reluctant to endorse some of the tax cuts that Mr. Berlusconi and other politicians desire. 
 
 Now, with few signs of economic improvement, the government is stumbling in its effort to approve a new budget that includes some austerity measures, and investors have once again turned their attention to the country. 
 
 If Mr. Berlusconi continues to foster an uncertain political environment, and if Mr. Tremonti winds up a political casualty, Italy could be swept up in the debt crisis that began in Greece. 
 
 Financial markets remain alarmed about European officials’ failure to come to grips with the crisis in Greece, which represents about 2 percent of the euro zone economy. 
 
 Despite some insistence that investors should bear some of the pain, the European Central Bank has been very skeptical about involving private sector holders of Greeks bonds in the second bailout, an aid package estimated at 85 billion euros ($121 billion). 
 
 Germany, the Netherlands and Austria remain wedded to the idea, however. A French proposal to roll over Greek debt was derailed when Standard & Poor’s said that would probably constitute a selective default. After the statement, Germany appeared to push for its original idea that investors swap the Greek bonds they hold for new debt with longer maturities.
– Top European officials scheduled a last-minute meeting today amid fears Italy would be the next country hit hard by the euro zone debt crisis. Though a rep for the European Council president says Italy isn’t on the agenda, other officials privately contradict him. Last Friday saw a 2.45% gap between the yields of Italian and German 10-year bonds—the biggest since the euro began. The Italian yield has hit some 5.27%, just below the 5.5% bankers fear could prompt a widening crisis. Meanwhile, the country’s blue-chip stock market index dropped 3.5%. Investors are worried Silvio Berlusconi may be trying to squeeze out the country’s finance minister, Giulio Tremonti, who has been considered highly effective during the financial crisis and in managing debt. The threat to Italy hasn’t approached the severity of the Greek crisis, but its economy is more than double the size of Greece, Portugal, and Ireland combined, notes the New York Times. “We can't go on for many more days like Friday," a European official tells Reuters. "We're very worried about Italy."