Italy Borrowing Costs Jump Before Austerity

14 Luglio 2011, di Redazione Wall Street Italia

Milan (AP) — Italy’s borrowing costs jumped higher in a
bond sale Thursday, only hours before the Senate was due to
vote through an austerity package that is key to convincing
investors the eurozone’s third-largest economy will not be
dragged into the debt crisis.

Italy raised euro4.96 billion ($7 billion) by selling 5- to
15-year bonds, but investors demanded sharply higher interest
rates, a sign of increased concerns about the country’s
financial future.

Yields on the 5-year bonds hit 5.9 percent, the highest for
that debt since the launch of the euro and up from 3.9 percent
at the last such auction in June. The 15-year bond yields hit
4.93 percent, the highest since June 2008.

Italian stocks and bonds, which were buoyed in the early
morning on the prospect of the Senate vote, slumped after the
sale. Finance Minister Giulio Tremonti said the austerity package
contains 16 measures to spur growth. He has pledged that the

houses by Friday — a move that had helped restore a measure of
confidence in the Italian markets after days of turmoil. But
markets faltered by midday after a bond sale in which Italy
raised euro4.96 billion ($7 billion) but at sharply higher

Italy is under pressure to reassure markets that it can
bring its accounts in order and promote growth, or risk being
swept into the debt crisis that has hit Greece, Ireland and
Portugal. The government accelerated the approval — from an
original deadline of August — to soothe jittery markets.

After the Senate vote on Thursday, the lower house will
vote on Friday in what will be a measure of confidence in
Premier Silvio Berlusconi’s government.

The measures to spur growth involve credits for research,
reforms to civil justice and measures to promote tourism and
young entrepreneurs, Tremonti said. While Italy’s debt is among
the highest in the eurozone at nearly 120 percent of GDP, poor
growth is seen by some as the overriding issue. “Without the balanced budget, the monster of debt, which comes from the past, would devour our future and that of our children,” Tremonti said.