As the New York Times reports, the European Central Bank is reluctant to step in and start buying Italian bonds because it fears that its previous bond buying efforts have simply enabled the Italians to avoid necessary reforms. It feels that only market pressure will make the Italians actually act.
But this is a dangerous game to play because if Italy falls, France will be left teetering on the brink. BNP Paribas has 12.2 billion euros of Italian sovereign debt and Crédit Agricole 8.7 billion. France could not recapitalise these banks without losing its treasured triple A rating.