الرئيسية
By Barry Moody and Elisabeth O'Leary, Reuters
ROME/MADRID (Reuters) - Italy's borrowing costs soared to
their highest levels since Rome joined the euro on Friday, piling
pressure on the newly installed government of Mario Monti at the end of a
week in which the euro zone crisis tainted even safe haven Germany.
A
punishing bond sale, in which Italy was forced to pay a record 6.5
percent for six months paper, came after a disastrous German bond
auction earlier in the week and the leaders of France, Germany and Italy
failed to make headway in tackling the growing debt crisis.
Amid
signs that the euro zone contagion is spreading, indications emerged in
Madrid that the People's Party, getting ready to form a government in
the coming weeks, may apply for international aid to shore up its
finances.
After winning an election this month, the PP under
Mariano Rajoy inherits an economy on the verge of recession, a tough
2012 public deficit target, financing costs driven to near unsustainable
levels by nervous debt markets and a battered bank sector with billions
of euros of troubled assets on its books.
Tuesday's launch by
the International Monetary Fund of a credit facility for fiscally
responsible countries at risk from the euro zone debt crisis gives it a
potential lifeline it may wish to exploit.
"I don't believe the
decision has been made ... but it is one of the options on the table,
because I've been asked about it. But we need more time and more
information on the current state of things," a source close to the PP
told Reuters.
Italy's auction on Friday, described by one analyst
as "awful," spooked investors further and pushed two-year yields on the
secondary market to an eye-watering euro lifetime high of more than 8
percent.
Longer term debt is above a "red line" of 7 percent
which forced Portugal, Greece and Ireland into bailouts that Europe
could not afford for the much bigger Italian economy.
Spiralling
borrowing costs have added to pressure on Monti's government of
technocrats, hastily sworn in this month after Prime Minister Silvio
Berlusconi was bundled out of office as economic pressures grew.
European
Economic and Monetary Affairs Commissioner Olli Rehn threw his backing
behind Monti but warned that swift action was needed to contain the
escalating euro zone debt crisis.
He dismissed fears that the euro's survival was in question but said the crisis had reached the heart of the single currency.
"This
contagion effect has been touching the proximity of the core and even
touching the core itself," he told a news conference after meeting Monti
in Rome.
"It shows that this is an increasingly systemic
phenomenon, which calls for strong financial firewalls in order to
contain this contagion and have a counterforce to this market
turbulence."
EYES ON ECB
With the European Central Bank
coming under increasing pressure to take more effective action,
something it and Germany continue to oppose in public, officials
suggested one possible scenario that could break the impasse.
A
push by euro zone countries toward very close fiscal integration could
give the ECB the necessary room for maneuver to dramatically scale up
euro zone bond purchases and stabilize markets.
The ECB, which
cannot directly finance governments, has been buying Italian and Spanish
bonds intermittently on the secondary market since August to try to
keep their borrowing costs and contain Europe's sovereign debt problem.
But
Italian and Spanish yields have nonetheless reached levels that
economists see as unsustainable, raising the possibility that Rome and
Madrid will be forced to seek emergency international funding.
"We
are not far from a point when the disruption in the markets is so big
that monetary policy transmission does not work at all," said one euro
zone official involved in shaping the euro zone's policy response to the
crisis.
"If the ECB has the assurance that we are moving toward a fiscal union, they could be ready to go all out," he said
Belgium,
which had prided itself on being able to stabilize its debt position
despite having had no government for the past 18 months, saw its credit
rating downgraded.
Political deadlock in Brussels prompted
Standard & Poor's to cut Belgium's credit rating to double-A from
double-A-plus, citing concerns about funding and market pressures, as
the euro zone debt crisis continues to worsen.
"We need a reply
that is clear and credible if we are to avoid the worst," Belgium's
caretaker prime minister, Yves Leterme, told Belgian television.
The
downgrade followed difficulties this week in Belgium's drawn-out
attempt to form a government. Elio Di Rupo, leader of the
French-speaking Socialists, had been trying to form a government based
on a six-party coalition.
But he tendered his resignation on
Monday after talks for a 2012 budget - agreement on which is a condition
for forming a government - ground to a halt.
Greek, the source of the euro zone's debt crisis, provided another source of dispute.
Investors'
worries intensified after reports that Greece was demanding harsh
conditions from creditors on a proposed bond swap -- critical to reduce
its debt and avoid default.
Banks represented by the Institute of
International Finance agreed last month to write off the notional value
of their Greek bondholdings by 50 percent to reduce Greece's debt ratio
to 120 percent of its gross domestic product by 2020.
But Greece
was demanding that its new bonds' net present value -- a measure of the
current worth of future cash flows -- be cut to 25 percent, a far
harsher measure than the banks had in mind, according to people briefed
on the matter.
(Writing by Giles Elgood, editing by Mike Peacock)
ROME/MADRID (Reuters) - Italy's borrowing costs soared to
their highest levels since Rome joined the euro on Friday, piling
pressure on the newly installed government of Mario Monti at the end of a
week in which the euro zone crisis tainted even safe haven Germany.
A
punishing bond sale, in which Italy was forced to pay a record 6.5
percent for six months paper, came after a disastrous German bond
auction earlier in the week and the leaders of France, Germany and Italy
failed to make headway in tackling the growing debt crisis.
Amid
signs that the euro zone contagion is spreading, indications emerged in
Madrid that the People's Party, getting ready to form a government in
the coming weeks, may apply for international aid to shore up its
finances.
After winning an election this month, the PP under
Mariano Rajoy inherits an economy on the verge of recession, a tough
2012 public deficit target, financing costs driven to near unsustainable
levels by nervous debt markets and a battered bank sector with billions
of euros of troubled assets on its books.
Tuesday's launch by
the International Monetary Fund of a credit facility for fiscally
responsible countries at risk from the euro zone debt crisis gives it a
potential lifeline it may wish to exploit.
"I don't believe the
decision has been made ... but it is one of the options on the table,
because I've been asked about it. But we need more time and more
information on the current state of things," a source close to the PP
told Reuters.
Italy's auction on Friday, described by one analyst
as "awful," spooked investors further and pushed two-year yields on the
secondary market to an eye-watering euro lifetime high of more than 8
percent.
Longer term debt is above a "red line" of 7 percent
which forced Portugal, Greece and Ireland into bailouts that Europe
could not afford for the much bigger Italian economy.
Spiralling
borrowing costs have added to pressure on Monti's government of
technocrats, hastily sworn in this month after Prime Minister Silvio
Berlusconi was bundled out of office as economic pressures grew.
European
Economic and Monetary Affairs Commissioner Olli Rehn threw his backing
behind Monti but warned that swift action was needed to contain the
escalating euro zone debt crisis.
He dismissed fears that the euro's survival was in question but said the crisis had reached the heart of the single currency.
"This
contagion effect has been touching the proximity of the core and even
touching the core itself," he told a news conference after meeting Monti
in Rome.
"It shows that this is an increasingly systemic
phenomenon, which calls for strong financial firewalls in order to
contain this contagion and have a counterforce to this market
turbulence."
EYES ON ECB
With the European Central Bank
coming under increasing pressure to take more effective action,
something it and Germany continue to oppose in public, officials
suggested one possible scenario that could break the impasse.
A
push by euro zone countries toward very close fiscal integration could
give the ECB the necessary room for maneuver to dramatically scale up
euro zone bond purchases and stabilize markets.
The ECB, which
cannot directly finance governments, has been buying Italian and Spanish
bonds intermittently on the secondary market since August to try to
keep their borrowing costs and contain Europe's sovereign debt problem.
But
Italian and Spanish yields have nonetheless reached levels that
economists see as unsustainable, raising the possibility that Rome and
Madrid will be forced to seek emergency international funding.
"We
are not far from a point when the disruption in the markets is so big
that monetary policy transmission does not work at all," said one euro
zone official involved in shaping the euro zone's policy response to the
crisis.
"If the ECB has the assurance that we are moving toward a fiscal union, they could be ready to go all out," he said
Belgium,
which had prided itself on being able to stabilize its debt position
despite having had no government for the past 18 months, saw its credit
rating downgraded.
Political deadlock in Brussels prompted
Standard & Poor's to cut Belgium's credit rating to double-A from
double-A-plus, citing concerns about funding and market pressures, as
the euro zone debt crisis continues to worsen.
"We need a reply
that is clear and credible if we are to avoid the worst," Belgium's
caretaker prime minister, Yves Leterme, told Belgian television.
The
downgrade followed difficulties this week in Belgium's drawn-out
attempt to form a government. Elio Di Rupo, leader of the
French-speaking Socialists, had been trying to form a government based
on a six-party coalition.
But he tendered his resignation on
Monday after talks for a 2012 budget - agreement on which is a condition
for forming a government - ground to a halt.
Greek, the source of the euro zone's debt crisis, provided another source of dispute.
Investors'
worries intensified after reports that Greece was demanding harsh
conditions from creditors on a proposed bond swap -- critical to reduce
its debt and avoid default.
Banks represented by the Institute of
International Finance agreed last month to write off the notional value
of their Greek bondholdings by 50 percent to reduce Greece's debt ratio
to 120 percent of its gross domestic product by 2020.
But Greece
was demanding that its new bonds' net present value -- a measure of the
current worth of future cash flows -- be cut to 25 percent, a far
harsher measure than the banks had in mind, according to people briefed
on the matter.
(Writing by Giles Elgood, editing by Mike Peacock)