Berlusconi faces D-Day as rate on Italian bonds reaches new high
Tuesday, 08 November 2011 10:22
The cost of borrowing for the Italian government has now risen beyond the levels that required Ireland, Greece and Portugal to require a bailout.
The developments come ahead of a crucial vote in the Italian Parliament and for the Prime Minister, Silvio Berlusconi on the budget agreed to try and help Italy meet its austerity targets that have been demanded of it by its European partners.
The yield on Italian 10-year bonds has risen to 6.73 per cent, beating yesterday’s level which was a record since the Euro began in 1999. The question is will the rate continue to rise ahead of the vote and will the result of the vote in the Italian parliament lead to changes that placate the markets and reduce the yield on Italian government bonds.
The rate has increased today for a variety of reasons, including Italy’s high level of debt but also the instability surrounding the Italian government and investor fears that the third biggest economy in the eurozone could potentially default on its debts.
The markets improved yesterday after incorrect reports suggested that Mr Berlusconi would step down, so it is clear what the markets are looking for but it appears that Mr Berlusconi has other ideas. He has promised to introduce another round of austerity measures but many senior political and economic figures, including the head of the International Monetary Fund (IMF), Christine Lagarde, believe his plans lack credibility.
Concerns over Italy have now taken over from Greece as the most serious concern for European leaders who are preparing to meet in Brussels to discuss the European Financial Stability Facility (EFSF).
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