Friday, November 25, 2011

Italian short-term borrowing costs surge: Europe teeters on verge of collapse

Italy's borrowing costs shot higher on Friday as Rome was forced to pay euro-era high interest rates to investors in what analysts called an "awful" auction of short-term debt.

Yields on two-year bonds jumped above 8 per cent after an auction of this debt and six-month bills raised the full targeted €10bn but at the cost of sharply higher yields.

The European Central Bank on Friday was reportedly intervening in the sovereign bond market again, buying Italian and Spanish debt in an effort to limit the unsustainable rise of interest rates.

"We're witnessing a slow-motion collapse of the world's third-largest bond market. It is agonising to watch," Nicholas Spiro, a London-based sovereign risk analyst, said.

The auction will add to pressure on Mario Monti, Italy's new prime minister leading a government of technocrats, to announce details of his plans to reduce Italy's budget deficit and promote economic growth as Italy hovers on the edge of renewed recession. After just a week in office, Mr Monti, former European commissioner, has only spoken in general terms of what he intends to do and has still not appointed his full team.

A cabinet meeting on Friday had been expected to announce names of deputy ministers and under-secretaries, but ministers emerging from the meeting said the issue was not discussed. Reports and comments from politicians suggest that Mr Monti has been blocked in his efforts to get the main political parties inside his government with senior posts. more