Background Information
1. Sovereign Debt Crisis
Sovereign debt refers to a sovereign country guarantee as their own sovereign to issue bonds or through other ways to borrow the money from the foreign countries and international organizations. Because of most of sovereign debt evaluate by foreign currency and borrow from international agencies, foreign governments or international financial institutions. Therefore, once debt credit rating of the country is reduced, it will lead to a sovereign debt crisis.
Debt crisis refers to in the field of international indebtedness; the debt of a country greatly exceeds its solvency and causes insolvency or moratorium. To measure a national debt solvency to have multiple indicators, the two of main indicators are foreign debt service ratio and debt ratio. Foreign debt service ratio refers to a country in a year of foreign debt repay capital with interest accounts for current year or last year of the ratio of the amount of export proceeds. Normally, it should not exceed 20%. Debt ratio refers to the ratio of a country of foreign debt balance in current year and f gross national product (GNP). Normally, it should not exceed 10%.
2. European Sovereign-debt Crisis
Over the past decade, the European Union has been characterized by an explosion of expenditure, insufficient revenue, high deficits and a lack of budget discipline. Financial markets in Europe are currently dealing with enormous government debts, poor government balance sheets and a weakening banking system. Eventually caused the European Sovereign-debt Crisis
Debt problems emerged in late 2009. In December 2009, the three larger rating agencies downgraded Greece's sovereign rating and Greece's debt crisis started to become more and more serious. Since 2010, other European countries had started to be in debt crisis. The five much serious debt crisis countries are Portugal, Italy, Ireland, Greece and Spain (PIIGS).

Figure 1: Debt to GDP Ratio for European Countries
(Source from: http://en.wikipedia.org/wiki/File:Eurozone_Countries_Public_Debt_to_GDP_Ratio_2010_vs._2011.png)

Figure 2: Deficits of GDP for European Countries
(Source from: http://www.bundesfinanzministerium.de/)
From figure 1 and 2, we can see that European countries’ deficit and debt problems are more serious in recent years. Figure 1 reflects the debt to GDP ratio for European countries from 2008 to 2011. According to figure 1, we can see that European countries' debt increased year by year and the one of the most serious is Greece. Figure 2 compares that deficit of GDP for European countries from 2009 to 2012. From figure 2, it shows the other European countries’ deficits problems beside Germany are more serious and about above 4%. The most serious country is Spain and about above 8%.

Case Study: Italy
1. Background
a. Introduction of Italy Economic Background
Over recent years, Italy has maintained its reputation as a major manufacturing country with banks that managed to properly mitigate the tension of the 2008 financial crisis and a population that has demonstrated prudence in saving. The figure 3 shows that Italy's gross domestic product (GDP) increases quickly since 2000 and it occupies global top ten for several years. According to data is released by the World Bank (Figure 3), the Italy’s GDP of 2011 is US$2.194 trillion and it occupies the 8th place. The GDP value of Italy represents 3.54 percent of the world economy. The World Bank also estimates the Italy’s GDP of 2012 will be US$ 1.980 trillion and it will continue keeping the 8th place.

Figure 3: Italy GDP (2000-2011)
(Source from: http://www.tradingeconomics.com/italy/gdp)

Figure 4: Global GDP in 2011 and the Estimation of Global GDP for 2012
(Source from: http://data.worldbank.org/)
b. Italy Debt Crisis
Since Greek encountered debt crisis from 2009, many countries including Italy also had started to encounter debt crisis. Italy were breaching the budget deficit cap