AP Photo

Ever since the EU and the IMF 'bailed out' Greece in May last year, the eurozone has fought a desperate rear-guard battle to stem contagion to other countries - with little success. Ireland and Portugal have since been bailed out, and Cyprus could be next. The most disquieting development, however, has been incipient contagion to larger economies like Spain and Italy. Unless this contagion is arrested, the eurozone could face a potentially terminal crisis. For the past year, the Spanish government has been battling valiantly to persuade financial markets that it will not be the next domino in the chain. But the change in sentiment towards Italy has been more recent - and is perhaps more alarming. What explains it?

Until early July, Italy had just about convinced the financial...