It is likely to take the combined forces of the European Central Bank, the IMF and the euro zone bailout fund to break Italy's financial fall, and it's far from clear that Europe's leaders are ready to take on that rescue mission.
The precondition for Rome would be to rapidly replace Prime Minister Silvio Berlusconi with an internationally respected figure and adopt long-delayed structural reforms dictated by the European Union and the International Monetary Fund.
That might spur the currency bloc's leaders, who euro zone officials say have no plans for Italy's rescue even though its borrowing costs have risen sharply to levels that threaten its ability to raise funds on the market.
Financial assistance is not in the cards, one euro zone official said on Wednesday, adding the euro zone was not even considering extending a precautionary credit line to Rome.
It may already be too late. Many analysts say the Italian bond sell-off has already gone past a point of no return which will lead to the break up of the currency bloc.
If you allow Italy to fail you bring down the euro zone, said Nicholas Spiro, head of debt consultancy Spiro Sovereign Strategy.
A euro zone without tiny countries like Greece or Portugal may be plausible, but for many it is inconceivable without the region's third largest economy, a founding member of the group that evolved into the European Union.
Italy's benchmark bond yields jumped above 7.5 percent on Wednesday and the gap above their German equivalent hit 5.7 percent, both passing levels which forced Ireland and Portugal to leave the markets and seek international bailouts.
Moreover, the yield on 2-year bonds rose above 10-year ones for the first time since the launch of the euro, a clear sign of investors' concern that they will not get their money back.
Those yields would be much higher but for aggressive buying by the ECB, but if Italy is to be saved the bank must go much further and accept the role of lender of last resort to the euro zone, which it has so far resisted.
Italy's public debt is 1.9 trillion euros ($2.6 billion), the fourth largest in the world, and its funding needs are too great to be met by the euro zone's bailout mechanism (EFSF) and the IMF.
But while the too big to bail view assumes that Italy would need to be kept out of the market for years, if Rome is to be saved it must happen in a far shorter time frame.
There is plenty of money available from the IMF and EFSF for the next 3-4 months so, in a best case scenario Italy has about that long to sort itself out or it will have to leave the euro zone, said Riccardo Barbieri of Mizuho International.
As Italy's crisis prompted a sell-off in Wall Street, the U.S. Treasury's top official for international affairs urged Rome to move forward on fiscal and structural reforms.
Lael Brainard also said the IMF had ample resources to help resolve the European crisis and could play an important role in verifying progress on Italy's reforms.
BIG DEBT REDEMPTIONS
Italian funding needs are modest for the next two months but rise sharply going into the new year, with more that 150 billion euros of debt coming due between February and April.
Since Italian bond yields began rising in the summer the ECB and Italy's partners have been frustrated by the government's inability to adopt reforms to improve the growth potential of one of the world's most chronically sluggish economies.
The credibility of scandal-ridden Prime Minister Silvio Berlusconi is so low that even his pledge on Tuesday to stand down after approval of a budget bill this month came too late to give any relief to markets.
President Giorgio Napolitano issued a statement on Wednesday guaranteeing that Berlusconi really would go soon and that the bill would be passed within a few days.
Berlusconi's departure is necessary if Italy is to have any chance of survival, but the country's complicated internal politics may now have become irrelevant to its fate. Napolitano's words did nothing to bring down bond spreads.
What matters most in the minds of investors is not who will replace Berlusconi and how committed the next government will be to structural reforms, but whether euro zone policymakers will finally put in place a credible and durable backstop for Italian debt, said Spiro.
In the short term, the only thing that can save Italy is a large scale commitment on the part of the ECB.
(Editing by Ruth Pitchford)