Italy at heart of crisis as borrowing costs climb
Fri Oct 28, 2011 1:43pm EDT
By James Mackenzie and Valentina Za
ROME, Oct 28 (Reuters) - Italy's borrowing costs jumped to record levels on Friday, underlining its vulnerability at the heart of the euro zone debt crisis and scepticism about whether the struggling government of Prime Minister Silvio Berlusconi can deliver vital reforms.
The 6.06 percent yield paid at an auction of 10-year bonds was the highest since the launch of the euro and not far from the level reached just before the European Central Bank intervened in August to cap Rome's borrowing costs by buying Italian paper.
Italy, the euro zone's third largest economy, is once more at the centre of the debt crisis, with fears growing that its borrowing costs could rise to levels that overwhelm the capacity of the bloc to provide support amid chronic political instability in Rome.
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"The interest rates that they are paying are punitive," said Monument Securities strategist Marc Oswald. "As far as Italy goes, it is still the bete noire of the whole euro zone problem."
"They are still going to carry on having to pay higher yields unless they come up with reform plans and implement them. But anyone who expresses an optimistic opinion about that is probably looking through rose-tinted glasses," he added.
France and Germany have expressed open exasperation at a succession of unfulfilled reform promises by Berlusconi and fear the crisis in Italy could spark a wider emergency that would threaten the very existence of the single currency.
"STRANGE CURRENCY"
Even if a weakened government manages to pass the difficult reforms Berlusconi has promised, most would not come into force until the middle of next year. Markets are unlikely to remain patient during such a long delay.
In his speech Berlusconi took aim at the euro, calling it a "strange" currency.
"There is an attack on the euro which, as a currency has convinced no-one because it belongs to more than one country but does not have a bank of reference and guarantee," he said, referring to reluctance by Germany and other countries to allow the European Central Bank to be used as a lender of last resort.
Berlusconi, who is facing two fraud court cases and one for having sex with an underage prostitute, complained that he faced 37 judicial hearings between now and mid-January, impeding his ability to do his job. He says leftist magistrates are persecuting him in an attempt to undermine democracy.
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Full article: http://www.reuters.com/article/2011/10/28/italy-berlusconi-idUSL5E7LS3NE20111028
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