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Italy confirms talks with China over debt
September 14, 2011, Wednesday
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Print Edition
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Italy has confirmed it held talks with Chinese officials amid speculation Rome is looking to persuade China to buy its bonds or invest in its companies, while Italian Premier Silvio Berlusconi flew to Brussels yesterday to discuss the market turmoil.
The eurozone's third-largest economy is trying to convince investors it can manage its debt, find buyers for its bonds and avoid becoming the next victim of Europe's debt crisis.
Italian officials held talks in the past few weeks with Chinese counterparts about potential investments in the country, an Italian government official said yesterday, adding that bonds weren't the focus.
Finance Minister Giulio Tremonti met Chinese officials in Rome earlier this month, his spokesman Filippo Pepe said.
Chinese Foreign Ministry spokeswoman Jiang Yu, asked about buying Italian assets, said Europe is one of the nation's main investment destinations, without specifically mentioning Italy.
"Europe will continue to be one of China's main investment markets," said Jiang at a regular news briefing. "We will also expand financial and economic cooperation and investment cooperation with European countries to jointly address the financial crisis."
China hopes eurozone countries will "take effective measures to ensure the safety of China's investments," Jiang said.
Italy joins Spain, Greece, Portugal and investment bank Morgan Stanley among distressed borrowers that turned to China since the 2007 collapse in United States mortgage securities set off a crisis that widened to engulf euro region sovereign debtors.
News of the talks with China sent the Milan stock market higher when it opened yesterday, following market tensions across Europe. But the rebound was shaky, with stocks fluctuating.
Bond prices likewise received little support from the news especially after the country had to pay a euro-era high interest rate in a five-year bond auction.
Though the Italian Treasury raised 3.86 billion euros (US$5.27 billion) from the sale of five-year bonds, it had to pay an interest rate of 5.6 percent.
That was the highest rate it has had to pay since the euro was established in 1999 and marked a fairly hefty rise from the previous auction's equivalent of 4.9 percent.
"It's a clear pattern of China's intention to help stabilize the euro area," said Nicholas Zhu, head of macro-commodity research for Asia at Australia & New Zealand Banking Group in Shanghai and a former World Bank economist.
"The benefit to China is that it will help in the perception of host countries if China is viewed as a responsible stakeholder in the global community."
Italy's bond yields rose to a euro-era record last month as the region's sovereign debt crisis spread from Greece, the first to receive a European Union-led bailout. Berlusconi's government rushed a 54 billion euro austerity package to convince the European Central Bank to buy its debt.
Even so, the size of Italy's debt - at 1.9 trillion euros more than Spain, Greece, Ireland and Portugal combined - leaves it vulnerable to any rise in borrowing costs as it refinances maturing securities. The country still needs to sell about 70 billion euros of debt this year to cover its deficit and finance redemptions.
In Brussels, Berlusconi discussed the government's austerity package with European Union President Herman Van Rompuy, ahead of a key vote in the Italian parliament.
The measures seek to slash spending by more than 54 billion euros over three years. They will be put to a vote of confidence in the lower house of parliament today, Berlusconi said. The Senate has already cleared them.
The European Central Bank has bought Italian bonds in the open market to keep down their yields, which indicate the rates at which the country would be able to borrow on the market.
The eurozone's third-largest economy is trying to convince investors it can manage its debt, find buyers for its bonds and avoid becoming the next victim of Europe's debt crisis.
Italian officials held talks in the past few weeks with Chinese counterparts about potential investments in the country, an Italian government official said yesterday, adding that bonds weren't the focus.
Finance Minister Giulio Tremonti met Chinese officials in Rome earlier this month, his spokesman Filippo Pepe said.
Chinese Foreign Ministry spokeswoman Jiang Yu, asked about buying Italian assets, said Europe is one of the nation's main investment destinations, without specifically mentioning Italy.
"Europe will continue to be one of China's main investment markets," said Jiang at a regular news briefing. "We will also expand financial and economic cooperation and investment cooperation with European countries to jointly address the financial crisis."
China hopes eurozone countries will "take effective measures to ensure the safety of China's investments," Jiang said.
Italy joins Spain, Greece, Portugal and investment bank Morgan Stanley among distressed borrowers that turned to China since the 2007 collapse in United States mortgage securities set off a crisis that widened to engulf euro region sovereign debtors.
News of the talks with China sent the Milan stock market higher when it opened yesterday, following market tensions across Europe. But the rebound was shaky, with stocks fluctuating.
Bond prices likewise received little support from the news especially after the country had to pay a euro-era high interest rate in a five-year bond auction.
Though the Italian Treasury raised 3.86 billion euros (US$5.27 billion) from the sale of five-year bonds, it had to pay an interest rate of 5.6 percent.
That was the highest rate it has had to pay since the euro was established in 1999 and marked a fairly hefty rise from the previous auction's equivalent of 4.9 percent.
"It's a clear pattern of China's intention to help stabilize the euro area," said Nicholas Zhu, head of macro-commodity research for Asia at Australia & New Zealand Banking Group in Shanghai and a former World Bank economist.
"The benefit to China is that it will help in the perception of host countries if China is viewed as a responsible stakeholder in the global community."
Italy's bond yields rose to a euro-era record last month as the region's sovereign debt crisis spread from Greece, the first to receive a European Union-led bailout. Berlusconi's government rushed a 54 billion euro austerity package to convince the European Central Bank to buy its debt.
Even so, the size of Italy's debt - at 1.9 trillion euros more than Spain, Greece, Ireland and Portugal combined - leaves it vulnerable to any rise in borrowing costs as it refinances maturing securities. The country still needs to sell about 70 billion euros of debt this year to cover its deficit and finance redemptions.
In Brussels, Berlusconi discussed the government's austerity package with European Union President Herman Van Rompuy, ahead of a key vote in the Italian parliament.
The measures seek to slash spending by more than 54 billion euros over three years. They will be put to a vote of confidence in the lower house of parliament today, Berlusconi said. The Senate has already cleared them.
The European Central Bank has bought Italian bonds in the open market to keep down their yields, which indicate the rates at which the country would be able to borrow on the market.
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