Italy's borrowing costs on its three-year bonds skyrocketed Thursday to their highest level since December, as concerns about Spain and the state of Europe's economy continued to pummel the country's financial markets.
Italy paid 5.3 percent, up from 3.91 percent last month, to raise 3 billion euros ($3.76 billion) in three-year money from financial markets. The sale was fully subscribed, but the high rate underscores how investors are increasingly wary of lending to the country as it wallows in a deep recession and sees its debt pile increase.
Italy also auctioned 10-year bonds at a worryingly high rate of 6.13 percent and 15-year bonds at 6.1 percent. It sold a combined total of 1.5 billion euros in the two denominations, the maximum sought.
"Italian auctions are now as nerve-wracking as Spanish ones," said sovereign debt expert Nicholas Spiro of Spiro Strategy, warning that both Spain and Italy could soon find it too expensive to raise money on financial markets if the European Central Bank does not take action to restore confidence.
Italy's overall debt is an enormous 1.9 trillion euros ($2.4 trillion), requiring frequent market access to repay investors whose bonds are expiring. To lower that debt, the economy needs to become more competitive.
Spain's decision over the weekend to seek a bailout for its banks has fundamentally changed the market perception of Italy as the next most likely eurozone country to seek a bailout. Italy, which has the eurozone's third-largest economy, is under extreme pressure to speed up its reforms and implement austerity measures, while pressing European partners to come up with mechanisms to steady market confidence.
Monti's technocratic government came to power in November with broad, bipartisan support from political parties to reform the economy. However, lawmakers have in recent weeks shown signs of returning to the old Italian ways of political jockeying. Lobbies and some parties have pushed to water down some reforms.
As Italy's borrowing rates rose this week on concerns about its public finances, Monti on Wednesday urged lawmakers to agree quickly to the latest reforms to persuade investors the country is serious about making the kind of deep changes that will help it get out of recession. The economy has been largely stagnant for a decade, and slid into recession in the last quarter of 2011.
Parliament votes later Thursday on a package of anti-corruption measures aimed at making Italy a more just society — something that Monti, a former EU competition commissioner, believes will help encourage more risk-taking and enterprise-building. After being bruised on labor reforms, Monti's government attached the package to three votes of confidence on the most contentions passages, all of which easily passed lower house votes.
Monti meets later Thursday with French Prime Minister Francois Hollande. Both leaders favor the issuance of eurobonds, or jointly issued European debt to spread risk, but they are staunchly opposed by powerhouse Germany.
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