Italy’s borrowing costs rise as eurozone debt crisis shows no signs of easing

| December 30, 2011 | 0 Comments

This Is Money Reporter

Last updated at 10:02 PM on 29th December 2011

Italy was yesterday forced to pay painfully high interest rates to borrow money as the eurozone debt crisis showed no signs of easing.

Unelected prime minister Mario Monti said the single currency bailout fund needed more firepower after investors demanded a 6.98 per cent yield to buy ten-year government bonds.

Borrowing costs in Rome rose back above 7 per cent on the financial markets immediately after the auction, and the euro tumbled to a 15- month low against the US dollar.

Interest rates: Italy's borrowing costs rose above 7 per cent

Interest rates: Italy’s borrowing costs rose above 7 per cent

At the same time, borrowing costs in Britain dropped below 2 per cent as investors sought the relative safety of UK government debt.

‘Market movements this year have shown Britain to be a beacon of sanity in Europe,’ said David Miller, a partner at Cheviot Asset Management.

‘We have a stable government with a plan to reduce the deficit, an empowered central bank, and a floating currency. This is not a bad combination for surviving difficult times.’

Italy’s ten-year borrowing costs were lower than the 7.56 per cent demanded at a similar auction last month.

But the yield remained dangerously high at around the 7 per cent zone that triggered bailouts in other eurozone countries.

European leaders had been hoping for a larger fall in the borrowing cost to make Italy’s debt pile of £1.6trillion – or 120 per cent of its GDP – more sustainable.

Kathleen Brooks, research director at, said: ‘The timing of the auction was fairly bad for Rome as it’s difficult to see who would want Italian debt on their balance sheet at year-end.

It highlights that the situation in Italy remain precarious.’ The euro fell below $1.29 against the US dollar to its lowest level since September 2010. Monti, whose government was appointed with the approval of Brussels to deal with the debt crisis, said he was ‘ relieved’ by the auctions but added: ‘The financial turbulence absolutely isn’t over.’

Filed Under: Latest Finance News

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