Soaring rates
November 29, 2011
Italy's borrowing rates soared to nearly 8 percent as newly elected Prime Minister Mario Monti put the final touches on a plan to bring the country's enormous debt under control to avoid a catastrophic default.
Rome had to offer a record 7.89 percent yield to sell 3-year bonds, compared to 4.93 percent it paid in late October, and 7.56 percent for 10-year bonds, up from 6.06 percent at that time.
Both rates marked new euro highs, exceeding levels at which eurozone members Greece, Ireland and Portugal sought international bailouts.
Uncertainty over new governent
Part of the reason for the high yields has been uncertainty over Italy's new government. Monti named ministers nearly two weeks ago but appointed 28 vice-ministers and undersecretaries only Tuesday, acknowledging that it had taken him more him than planned to complete his government.
Monti was expected to outline his fiscal and economic reform plans at a Tuesday meeting of the Eurogroup in Brussels. The group is comprised of finance ministers of the 17-member eurozone.
Italy has a debt of 1.9 trillion euros ($2.53 trillion) - equivalent to 120 percent of its annual economic output. The country needs to refinance some 340 billion euros of maturing debt next year with big redemptions starting in late January. It has promised to balance its budget in 2013.
If Tuesday's bond auction is any indication, however, Italy will struggle to keep its borrowing costs under control without international help. And such help is certain to be a challenge: The eurozone's third-largest economy is considered too big to bail out under current rescue arrangements.
France in trouble?
Unsustainable borrowing costs for some of the eurozone's biggest economies have intensified pressure for action. Even Germany last week failed to sell all the bonds it wanted after investors sought higher premiums. And the credit rating agency Standard & Poor's, according to French media, could downgrade the outlook of France's top-level triple-A credit status within the next 10days.
France is the second largest guarantor of the European Financial Stability Facility bailout fund and one of only six triple-A members of the eurozone.
Author: John Blau (Reuters, AP)
Editor: Mark Hallam