Italy’s borrowing costs jumped to record levels on Friday, underlining its vulnerability at the heart of the eurozone debt crisis and skepticism about whether the struggling government of Italian 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 before the European Central Bank intervened in August to cap Rome’s borrowing costs by buying Italian debt.
Italy, the eurozone’s third--largest economy, is again at the center of the debt crisis, as fears grow that its borrowing costs could hit levels that overwhelm the capacity of the bloc to provide support amid chronic political instability in Rome.
In a speech in Rome, Berlusconi insisted that Italy would meet its target of balancing the budget by 2013.
Tainted by scandal and repeatedly at odds with his coalition allies, Berlusconi has promised his European partners a package of measures meant to spur Italy’s stagnant economy and cut its towering public debt, but has failed to convince markets made skeptical by his repeated failure to deliver reforms.
European leaders welcomed a letter of intent on reforms that he delivered to their summit last Wednesday, but emphasized that the measures must now be implemented.
“The interest rates that they are paying are punitive,” Monument Securities strategist Marc Oswald said. “Italy ... is still the bete noire of the whole eurozone 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.
Even if a weakened government manages to pass the promised reforms, most will not come into force until the middle of next year. Markets are unlikely to remain patient for so long.
In his speech, Berlusconi took aim at the euro, calling it a “strange” currency.
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