London: Markets have pushed Italy and the Eurozone towards what many investors see as a tipping point, but European Union officials on Wednesday said they were waiting for Italy to decide on a new government rather than planning emergency measures to turn the tide.

The decision to stand firm appeared both a measure of the Eurozone's continued belief that only Italy itself can now change market sentiment — and a tacit acknowledgement the tools in the international arsenal have become increasingly limited.

The prospect of a technocratic government taking over quickly from a teetering Silvio Berlusconi to push through long-demanded economic reforms — coupled with returning order to Greece and beefing up their €440 billion (Dh2,193 billion) rescue fund — presented the best hope for turning around a darkening crisis.

"There is nothing that the European [leaders] can effectively do at this point," said Sony Kapoor, head of the economic consultancy Re-Define. "They have to let events happen in Italy."

But if current plans do not work, the scenarios quickly become far more complicated.

EU officials and the majority of independent analysts agree Italy's economic fundamentals are far better than those of Greece or other Eurozone countries in full-scale bailouts. Its debt levels are high but its annual deficits are small, its banking sector is sound and its overall economy big and diversified.

Reforms that can immediately cut the country's debt burden and spur economic growth could have a powerful effect on its ability to dig out of the current hole. Making sure Italy moves forward on plans to do both is the reason officials pushed Rome to accept both EU and International Monetary Fund monitors.

Mujtaba Rahman, an analyst at the Eurasia Group, said the Italian panic had been made worse by Greece and fights over reforming the rescue fund, the European Financial Stability Facility (EFSF).

A letter sent by EU inspectors ahead of their arrival Wednesday, and obtained by the Financial Times, shows their mission intends to be intrusive. Brussels is asking for a list of state-owned assets Rome can sell to raise €5 billion per year for debt reduction. The letter also asks for measures "over and above" the privatisation plan.

Inspectors also wrote they believe Italy would no longer hit budget targets for 2012 and 2013 and asked for Rome to come up with "additional measures" to balance its budget by 2013.

EU officials have reason to hope such measures can work. Ireland, which had solid economic fundamentals before a banking crisis dragged it into a €85 billion bailout last year, has seen its bond yields cut almost in half after two quarters of better-than-expected export growth.

Another option is a precautionary line of credit, this was offered to Berlusconi at the Group of 20 summit in Cannes last week, but was turned down. This would likely come from the IMF. Last month, the EFSF was given similar powers and there is now talk it could step into the breach.

Essentially, the EFSF or IMF would give Italy a limited amount of credit with conditions attached. But the move could further spook investors, convincing them Italy's problems were worse than originally believed. In addition the aid may not be enough. Italy must raise €300 billion next year.

If Italy proves unable to return to the public markets with a credit line, the next step would be a bailout that would take Rome out of the bond market altogether.

If such a plan were to follow previous models, it would be a three-year programme where EU and IMF lenders would carry the weight of Italian debt payments until confidence returned so Italy could service its own debts.

The problem is Italy's size. While a small country like Greece needs about €130 billion to cover borrowing needs for three years, Italy would need that much to cover just six months.

The EFSF now only has about €250 billion left to lend — a number that in an Italian bailout gets cut to €110 billion, as Italy contributes €139 billion to the fund.

Italy would have to rely heavily on the IMF. But IMF officials said they only had about $400 billion (Dh1,469 billion) to hand. Or there could be a takeover by the European Central Bank. Some Eurozone governments have argued the ECB must become the zone's lender of last resort to stop the run on peripheral sovereign bonds.

— Financial Times