Italy debt fears rise after poor auctions
Source: Agencies |
November 26, 2011, Saturday
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Print Edition
Print Edition
ITALY had to pay sharply higher borrowing rates to entice investors to part with their cash during a couple of auctions yesterday, in an acute sign that Europe's debt crisis is laying siege to the eurozone's third-largest economy.
The auction results are another sign the country's new technocratic government faces a big battle to convince investors that it has a strategy to get a grip on the country's massive debts, and are likely to fuel calls for the European Central Bank to use its firepower to ease a debt crisis that's shown alarming signs of getting much worse this week.
Italian Premier Mario Monti, who replaced Silvio Berlusconi last week, has pledged new austerity measures followed by deeper reforms, and has spent much of his first days in office meeting with European Union officials and the leaders of France and German laying out his plans to get the country's debt burden down.
Italy's debts, which stand at 1.9 trillion euros (US$2.6 trillion), or a huge 120 percent of economic output, are too big for the eurozone's current anti-crisis measures to deal with. Given the size of its debts, Italy has to keep coming to the markets to tap investors for money. The problem arises when the rates it has to pay get so high that the actual debt burden rises - fueling a potentially-devastating debt spiral.
Yesterday's auctions indicated that investors are finding it an increasing risk holding onto Italian debt. The country had to pay an average yield of 7.814 percent to raise 2 billion euros in two-year bills. That rate was sharply higher on the 4.628 percent it had to pay in the previous auction. And even raising 8 billion euros for six months proved exorbitantly expensive. The yield for this auction spiked to 6.504 percent, nearly double the 3.535 percent rate in the last equivalent auction.
The auction results are another sign the country's new technocratic government faces a big battle to convince investors that it has a strategy to get a grip on the country's massive debts, and are likely to fuel calls for the European Central Bank to use its firepower to ease a debt crisis that's shown alarming signs of getting much worse this week.
Italian Premier Mario Monti, who replaced Silvio Berlusconi last week, has pledged new austerity measures followed by deeper reforms, and has spent much of his first days in office meeting with European Union officials and the leaders of France and German laying out his plans to get the country's debt burden down.
Italy's debts, which stand at 1.9 trillion euros (US$2.6 trillion), or a huge 120 percent of economic output, are too big for the eurozone's current anti-crisis measures to deal with. Given the size of its debts, Italy has to keep coming to the markets to tap investors for money. The problem arises when the rates it has to pay get so high that the actual debt burden rises - fueling a potentially-devastating debt spiral.
Yesterday's auctions indicated that investors are finding it an increasing risk holding onto Italian debt. The country had to pay an average yield of 7.814 percent to raise 2 billion euros in two-year bills. That rate was sharply higher on the 4.628 percent it had to pay in the previous auction. And even raising 8 billion euros for six months proved exorbitantly expensive. The yield for this auction spiked to 6.504 percent, nearly double the 3.535 percent rate in the last equivalent auction.
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