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FXstreet.com (Barcelona) - According to European Economist Ben may at Capital Economics, "While Italy is the next domino in the line after Spain, there are grounds to think that it may avoid suffering a similar fate to the other peripheral economies. After all, Spanish yields only rose modestly in the first few months after Portugal asked for help, suggesting that the "domino effect" may have become weaker over time."

What's more, compared to a year or two ago, policymakers are now better placed to prevent contagion. In 2010 and 2011, markets did not expect the ECB to intervene aggressively to lower peripheral bond yields and there were also doubts about the size of the EFSF's firepower.

Now though, markets are well aware that the ECB and ESM could start to purchase large amounts of government bonds within a matter of weeks. Concerns about the bailout facilities' firepower have also diminished. The introduction of the ESM has increased the maximum amount it can lend. In addition, "confidence has grown amongst the markets that the provision of a precautionary credit line and ECB bond purchases may ensure that Spain does not need a full-blown ESM bailout, hence leaving more money in the pot to support Italy." May notes.

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