110 basis points. Here is the level of increase of the French German spread between early July and today,  spread which is today at its maximum since the 1992 exchange rate crisis. Half of this increase, just like for Italy with Germany, occurred in the last week.

Early July, the Italian differential with France was approximately 145 basis points, it is 405 basis points today. A 260 basis points increase. So 110 basis points of the 370 increase in the spread of Italy vs. Germany between July and today (from approximately 180 basis points to 550 points) is common even to the second most stable country in the euro area, France. To sum up:

ITA – GER = [ITA – FRA] + [FRA- GER]

INCREASE BY 370 = INCREASE BY 260 + INCREASE BY 110

It is evident that such an increase in France-Germany spreads is not due to a higher probability of default by France but is due to the increased likelihood of a break-up in the euro area which might involve France too, combined with the ensuing expected depreciation of the French Franc with respect to the German DM or, for a given likelihood, to an increasing expected depreciation.

If markets do not believe in a default neither in Italy nor in France, then we must understand that Italy thus faces in the eyes of markets either a greater probability of exiting the euro than France, or a greater devaluation in the case of joint exit, or a mix of the two.