On Monday, Italy’s cost of borrowing hit its highest level since the country adopted the euro.
If the cost of borrowing rises too much, Italy might not be able to refinance its debt. Italy is too big to be bailed out by Europe’s financial rescue fund.
The euro slipped to $1.3761 in afternoon trading Monday from $1.3778 late Friday.
The euro recovered from earlier lows on increased speculation that Italian Prime Minister Silvio Berlusconi may resign. Berlusconi denied that he will step down, but Italy’s stock market rallied on the rumor.
Concerns about Italy’s debt crisis have overshadowed news that Greece will form a new government.
The development paves the way for Greece to receive its next bailout package and avoid a messy default.
The euro fell about 2.5 percent against the dollar last week on worries that Greece’s political turmoil could force it to default on its debt.
A default would deal a blow to European banks that hold Greek government bonds and shock Europe’s financial system.
In other trading Monday, the British pound fell to $1.6034 from $1.6040. The dollar rose to 0.9019 Swiss franc from 0.8859 Swiss franc and to 1.0144 Canadian dollar from 1.0173 Canadian dollar. It fell to 78.02 Japanese yen from 78.16 yen.
