Italy’s borrowing costs doubled in a closely-watched bond auction yesterday that raised €11 billion in short-term debt, as tensions returned to eurozone bond markets.
€8 billion in 12-month bonds were sold at a rate of 2.84 per cent, far higher than the 1.492 per cent paid in March while €3 billion due this July went at 1.249 per cent compared to 0.492 per cent last month.
Borrowing costs had been on the decline in recent months after Prime Minister Mario Monti came to power in November, replacing Silvio Berlusconi who was ousted by a parliamentary revolt and a wave of financial market panic. Investor jitters have returned to the markets this week due to mounting fears over global growth prospects following weak Chinese trade and US jobs data, as well as doubts over debt-laden Spain’s ability to control its finances.
Stocks in Milan were performing relatively well, however, with the benchmark FTSE Mib index up 1.54 per cent – but this was a technical rebound to Tuesday’s plunge of 4.98 per cent led by a sharp fall in bank shares, making it the worst performer in Europe.
“Even though demand was stable as expected, the operation was impacted by the reigniting of tensions on eurozone sovereign debt and saw a sharp rise in rates,” a Bank of Italy source was quoted by ANSA news agency as saying.
Monti has implemented a series of harsh austerity measures since coming to power at the head of a technocratic government and has launched a series of structural reforms aimed at liberalising the economy and boosting growth.
The economy entered recession in the second half of last year, shrinking by 0.2 per cent in the third quarter and 0.7 per cent in the fourth. It is expected to contract further this year despite government reform measures.
The government is so far forecasting a shrinkage of 0.4 per cent over the year but business daily Il Sole 24 Ore on Tuesday reported that the figure is about to be revised to a 1.3-1.5 per cent contraction.
The government, however, has said it is on track to restore budget balance by 2013 and is predicting it will reduce the public deficit to 1.3 per cent of GDP this year, far lower than other eurozone economies seen as vulnerable.