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Record borrowing costs put Italy at centre of crisis
Date 31/10/2011 16:14  Author webmaster  Hits 991  Language Global
• 31 OCT 2011

Relief at European debt deal fades as Rome struggles at first test since Brussels summit

By Nikhil Kumar | The Independent

Fear made a swift return to the eurozone yesterday as Italy faced record borrowing costs in its first attempt to tap the markets since European leaders came up with new plans to rein in the sovereign debt crisis.

The lack of confidence in their proposals was laid bare when Rome would was forced to pay interest rates of more than 6 per cent to borrow money for 10 years by selling new bonds. The rate – the highest for new 10- year bonds since the country adopted the single currency – reignited concerns about Europe's ability to deal with the crisis as it threatened to spread to countries that are seen as too big to bail out.

Less than 36 hours before the Italian bond sale, leaders agreed proposals to reduce Greece's debt burden by asking private investors to take voluntary losses of around 50 per cent on their holdings of the country's debt. Plans for the so-called haircut on Greek bonds were accompanied by proposals to recapitalise banks and implement sweeping guarantees on bank funding as politicians attempted to restore confidence in the markets.

But the Italian auction, which also saw three-year yields rise to 4.93 per cent, the highest since November 2000, offset any lingering optimism about the package. The record rates triggered reversals for European shares. The FTSEurofirst 300, which tracks leading European equities, turned negative after the results were publicised.

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See also:
Italian debt soars on EU bail-out fears (The Telegraph)
Don't Tell The Italian Banks They Got Bailed Out: 3 Out Of Top 4 Banks Trading Below "Bailout" Price (Zero Hedge)