Italy’s cost of borrowing has hit an 11-year high, as yields on 10-year bonds hit 7 per cent on Wednesday.

This marks the highest level since the euro was founded in 1999.

Italy is the latest country to be rocked by fears that it could be the latest casualty of the eurozone debt crisis, with premier Silvio Berlusconi vowing to resign after budget reforms are passed.

Italy, the eurozone’s third biggest economy, currently owes nearly €2 trillion, costing the government around €70 billion a year in interest alone. 

The yield on 10-year Italian government bonds has risen sharply over the past few weeks. By contrast, the yields on a 10-year German Bund are hovering around 1.8 per cent – an almost record low.

The news comes as political wrangling to form a short-term unity government continues in debt-ridden Greece, after Prime Minister George Papandreou stepped down on Monday.

Jason Gaywood, consultant at currency specialists HiFX, comments that ‘the perception’ of Italy’s debts being paid off is looking ‘increasingly unlikely’.

‘This is a damning statistic for Rome as once the interest paid by Ireland, Portugal and more recently Greece reached these dizzying levels, they all needed emergency cash bailouts from the EU and the IMF within weeks,’ he says.

Gaywood adds that the recently-boosted European Financial Stability Fund (EFSF) simply doesn’t have ‘enough money to fund these debts’.

‘One thing seems certain, the death of the euro as we know it is only a matter now of when, not if.’

Chris Broome, director of Broome Financial Planning, says the 7 per cent bond yield will have 'potentially huge ramifications' for UK investors, savers and borrowers.

'If Italy goes the same way as Greece, Portugal and Ireland then make no mistakes, the European and global economy — and markets — will go into meltdown. Borrowing rates could start rising rapidly as lenders price in the increased risk. Markets, meanwhile, could bomb, exposing pension and investment funds,' he says.

He adds: 'It's important that people start preparing now to weather what might be a considerable storm.'