Italy's borrowing costs hit a lifetime high of 7.89%

Italy's borrowing costs hit a euro lifetime peak of nearly eight per cent Tuesday as pressure on eurozone finance ministers intensified to staunch a two-year-old debt crisis that is blighting the world economy.

Rome had to offer a record 7.89 per cent yield to sell 3-year bonds, a huge leap from the 4.93 per cent it paid in late October, and 7.56 per cent for 10-year bonds, compared with 6.06 per cent at that time.

The borrowing costs were above the levels at which Greece, Ireland and Portugal applied for international bailouts, but European stocks and bonds rallied in apparent relief at the strong demand, with the maximum 7.5 billion euros sold.

"In an ideal world, these yields, and the fact that the 3-year was above 8 per cent in the grey market this morning, would serve to give the Ecofin/Eurogroup a sense of added urgency, but this is a far from ideal world," said Peter Chatwell, rate strategist at Credit Agricole in London.

The euro and European markets had earlier dipped on a report in business daily La Tribune that ratings agency Standard & Poor's would downgrade France's AAA credit rating within 10 days, dealing a body blow to the eurozone's ability to rescue heavily indebted countries.

New Italian Prime Minister Mario Monti is due to outline his fiscal and economic reform plans to finance ministers of the 17-nation currency area later Tuesday amid reports, denied in Washington and Rome, of a possible approach to the IMF.

Italy, with a 1.9 trillion euro debt pile -- equivalent to 120 per cent of economic output -- needs to refinance some 340 billion euros of maturing debt next year with big redemptions starting in late January. It has promised to balance its budget in 2013 but Tuesday's auction suggested it will struggle to keep borrowing costs under control without international help.

Italian daily La Repubblica said EU Economic and Monetary Affairs Commissioner Olli Rehn would tell eurozone ministers that Italy needs to introduce fiscal measures worth 11 billion euros immediately to meet its target.

In Brussels, Eurogroup ministers are expected to approve detailed plans to bolster their bailout fund to help prevent contagion in bond markets, under pressure from the United States and ratings agencies to stop the crisis spreading.

The newspaper report about France's credit rating came at a delicate time. France is the second largest guarantor of the EFSF bailout fund, and one of only six AAA states in the eurozone. S&P declined comment. French Finance Minister Francois Baroin, asked about the report, said the focus should not be solely on France.

The eurozone ministers are also set to release a long-delayed 8 billion euro loan instalment for Greece, vital to stave off bankruptcy in December and buy time for negotiations on an uncertain second bailout program for Athens.





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