The losses were swiftly followed by comments from a leading policymaker claiming there was nothing to worry about as he and his colleagues would do whatever it takes to avoid trouble.

"In the long term, Europe will turn out to have been a safe investment" said Jean-Claude Juncker, the head of the euro group, in an interview with French daily Le Figaro on Tuesday.

It was not just the policy makers who were talking down another day of heavy losses for the Italian market.

Baudouin Prot, the CEO of BNP Paribas, told CNBC the Italian economy was sound as he unveiled provisions totalling more than half a billion euros on the French banking giant's holding of Greek debt.

“I think Italy in its own right is very different from any peripheral euro zone situation, in terms of sovereign debt, I think Italy has a very strong savings rate, it has a strong economy, it has a bit of a low growth, so they need more structural reforms to increase the growth potential, but their fundamentals… (are) much more sound.

“I'm concerned by the present situation in terms of markets, but I'm not worried about Italy so far,” said Prot

Under pressure Prime Minister Silvio Berlusconi is expected to break his silence on Wednesday and discuss the significant rise in Italian bond yields and losses for Italian banks in an address to the lower and upper houses in Rome.

Having passed a 48 billion euro ($68 billion) austerity package last month, the Italian government is struggling to get ahead of the bond market - in part due to uncertainty over the future of the fiscally conservative Economy Minister Giulio Tremonti.

This stance has made Tremonti unpopular with Berlusconi and other members of the government, who are worried about the impact of lower spending on their re-election chances. A scandal over the renting of a luxury flat has added to the uncertainty surrounding the man who had successfully kept Italy off the radar of the bond market vigilantes until recently.

“Italy is a piece of the big puzzle in the euro zone,” said Pedro De Noronha, the Managing Director of Noster Capital in an interview with CNBC.com on Tuesday.

“The problem with Italy appears to be a lack of trust and could put the whole euro project at risk as it is simply too big too fail.

“Italy used to be able to devalue its way out of trouble when it had the Lira, this is no longer the case and Italy’s problem is similar to that of a number of western governments, it has a spending problem,” said De Noronha.

“Governments realized some time ago that they can buy voters via higher spending and the market is now saying stop.”

Whilst Italy’s debt is very high, it has not been running deficits like Portugal and Greece. De Noronha believes both went on a “debt orgy” when joining the euro, having never been able to borrow at such low levels before entering the single currency.

Dismissing the impact of Silvio Berlusconi on Italy’s problems, De Noronha said investors often give to much credence to politicians and their impact on the economy.

“Too much credit is given to politicians. Berlusconi is not big enough to impact the Italian story significantly. What we are seeing is the culmination of years of political decisions, not just Berlusconi’s” said De Noronha.

“As Warren Buffett said, you can put an idiot at the top of Coca Cola and they will still make money as they would be running a great company. If you put the world’s best strategic CEO at the helm of a structurally weak company then they will struggle.”

“The same is true of politics. President Clinton was in power during a wonderful time for the global and US economy. President Obama has a tougher hand to play.”