LONDON (Reuters) – One message from financial markets has become quite clear: attempts by the euro zone to ring-fence Greece and stop contagion to other, more significant economies has failed.

The job now in Berlin, Brussels and Paris is not to worry about Greece, which is all but lost, or even bailed-out Dublin and Lisbon.

Instead it is to stop Italy, the world’s eighth-largest economy, its third-largest debt market, and a founding member of the European project, from bringing down France and the euro zone as a whole.

“In a sense Greece, Portugal, Ireland have been side shows,” said Ken Courtis, an investment manager who used to be vice-chairman of Goldman Sachs in Asia.

“With Italy, we are moving to the main event. There is simply no way that Italy can conduct the massive refundings it has in the coming weeks with this situation. With these developments, the zone of global risk is set to dramatically increase.”

Contagion from Greece has already taken hold despite all the bail-outs, bond discounting and rhetoric that euro zone leaders have poured on the problem in months of excruciatingly slow negotiations and crisis meetings.

Italian yields lurched above 7 percent on Wednesday even though Prime Minister Silvio Berlusconi — blamed by many for his country’s political sclerosis — has pledged to quit after parliament passes the latest budget reform bill.

LONDON (Reuters) – One message from financial markets has become quite clear: attempts by the euro zone to ring-fence Greece and stop contagion to other, more significant economies has failed.

The job now in Berlin, Brussels and Paris is not to worry about Greece, which is all but lost, or even bailed-out Dublin and Lisbon.

Instead it is to stop Italy, the world’s eighth-largest economy, its third-largest debt market, and a founding member of the European project, from bringing down France and the euro zone as a whole.

“In a sense Greece, Portugal, Ireland have been side shows,” said Ken Courtis, an investment manager who used to be vice-chairman of Goldman Sachs in Asia.

“With Italy, we are moving to the main event. There is simply no way that Italy can conduct the massive refundings it has in the coming weeks with this situation. With these developments, the zone of global risk is set to dramatically increase.”

Contagion from Greece has already taken hold despite all the bail-outs, bond discounting and rhetoric that euro zone leaders have poured on the problem in months of excruciatingly slow negotiations and crisis meetings.

Italian yields lurched above 7 percent on Wednesday even though Prime Minister Silvio Berlusconi — blamed by many for his country’s political sclerosis — has pledged to quit after parliament passes the latest budget reform bill.

LONDON (Reuters) – The euro zone debt crisis kicked into a new gear on Wednesday as Italian bond yields soared into levels widely deemed unsustainable, causing a sharp sell-off in stocks and the euro.

Wall Street also looked set to open lower as fears about Italy, the world’s eighth-largest economy, spread.

Yields on 2-year and 10-year Italian bonds rose above 7 percent. The curve measuring the yields inverted for the first time in the euro era — a clear signal of rising concern among investors that they may not get their money back.

The moves came despite pledges by Prime Minister Silvio Berlusconi that he will resign after parliament passes budget reforms. His often controversial presence at the top has been viewed by many in the markets as a block to fiscal reform.

“The mere fact that Italian 10-year bond yields have hit the all important 7 percent level shows that the crisis will not end simply with Berlusconi’s excruciatingly slow demise,” said Joshua Raymond, chief market strategist at City Index.

Investors were also keeping an eye on Greece, which was struggling to create a consensus government under a new, yet-to-be-agreed prime minister.

A plan for former European Central Bank vice-president Lucas Papademos to lead a Greek government of national unity has run into trouble, party sources said on Wednesday, prolonging political hiatus as the country heads towards bankruptcy.

LONDON (Reuters) – Political changes at the top of two of the euro zone’s most troublesome economies boosted world stocks on Wednesday as investors bet that new brooms may help ease the currency bloc’s debt crisis.

Italian Prime Minister Silvio Berlusconi said late on Tuesday that he would step down after parliament passes budget reforms. Greece, meanwhile, was struggling to create a consensus government under a new prime minister.

Although Berlusconi’s pledge to resign may lead to a period of political uncertainty in the euro zone’s third largest economy, his often controversial presence at the top has been viewed by many in the markets as a block to fiscal reform.

In Greece, a government spokesman said a new coalition would be announced later in the day, although there was no indication of a deal on a new prime minister to lead the country back from the brink of bankruptcy.

World stocks as measured by MSCI were up more than a quarter of a percent, while in Europe the FTSEurofirst 300 .FTEU3 rose around 0.9 percent.

“Although there’s still a lack of clarity as to precisely how the next (Italian) leadership will be formed, investors are clearly encouraged by the fact there will now be change at the top and for the time being at least, this is bringing the bulls back into play,” said Terry Pratt, trader at IG Markets.

Earlier, in Japan, the Nikkei average .N225 closed up nearly 1.2 percent on optimism about Italy, which is also the world’s third largest debt market.

LONDON, Nov 9 (Reuters) – Political changes at the top of two of the euro zone’s most troublesome economies boosted world stocks on Wednesday as investors bet that new brooms may help ease the currency bloc’s debt crisis.

Italian Prime Minister Silvio Berlusconi said late on Tuesday that he would step down after parliament passes budget reforms. Greece, meanwhile, was struggling to create a consensus government under a new prime minister.

Although Berlusconi’s pledge to resign may lead to a period of political uncertainty in the euro zone’s third largest economy, his often controversial presence at the top has been viewed by many in the markets as a block to fiscal reform.

In Greece, a government spokesman said a new coalition would be announced later in the day, although there was no indication of a deal on a new prime minister to lead the country back from the brink of bankruptcy.

World stocks as measured by MSCI were up more than a quarter of a percent, while in Europe the FTSEurofirst 300 rose around 0.9 percent.

“Although there’s still a lack of clarity as to precisely how the next (Italian) leadership will be formed, investors are clearly encouraged by the fact there will now be change at the top and for the time being at least, this is bringing the bulls back into play,” said Terry Pratt, trader at IG Markets.

Earlier, in Japan, the Nikkei average closed up nearly 1.2 percent on optimism about Italy, which is also the world’s third largest debt market.