Italy seeks boost to bail-out fund

The Italian prime minister used his end of year press conference to warn that indebted countries will be "in difficulty" unless the European Financial Stability Facility (EFSF) is boosted with "significantly greater" firepower.

Italy raised €7bn (£5.9bn) in the first big test of the bond markets since the ECB opened its doors with €489bn of cheap loans in an attempt to inject liquidity into Europe's arid banking system. Rome paid 5.62pc to sell €2.5bn three-year debt – a much lower yield compared to the record high of 7.89pc paid a month ago. It paid 6.98pc to shift its 10-year bonds, compared with 7.56pc in November.

The total amount raised in the auction fell short of the €8.5bn target and the cost was still deemed to be unsustainable. The yield on Italian 10-year bonds closed at 7.06pc – stubbornly above the 7pc level seen as signifying the need for a bail-out.

The auction doused the optimism that followed Wednesday's auction of Italian six-month bills when the borrowing costs were halved from a month ago. Analysts said the auctions showed the ECB's action had eased pressure on shorter-term debt, but investors were still wary of longer-dated bonds.

Kathleen Brooks at Forex said the auction "reminds us that stresses remain, and although today's debt was always going to be a hard sell as it comes at the end of the year, Italy has a mountain to climb next year, as it tries to sell €400bn of debt – half of which needs to be sold to merely re-finance its original debts".


Meanwhile, the price of gold fell to its lowest level in six months as analysts warned that banks were being forced to sell the safe-haven asset in the search for liquidity.

Tobias Merath, an analyst at Credit Suisse, told reporters: "Gold is not a safe-haven asset against a liquidity crisis. Banks need to sell assets to raise cash and avoid bankruptcy." The euro fell to a 15-month low against the dollar as traders sought to sell the currency before the end of the year. The yield on UK gilts – the new safe haven – were pushed to fresh lows. But European stock markets rose marginally - the Stoxx Europe 600 closed up 0.9pc - buoyed by better than expected economic data in America.

Mr Monti said that the auctions had gone "rather well, but the financial turbulence absolutely isn't over". He said that to properly calm shattered markets "most of the work needs to be done in Europe".

The technocrat prime minister said securing the €33bn "Save Italy" austerity package was his first priority. The second would be a "Grow Italy" package that would attempt to overhaul and restart the economy. Mr Monti said the plans, which would include a shake-up of the welfare system and the jobs market, will be unveiled at a meeting of European finance ministers on January 23.

The scale of his task was underlined yesterday as fresh data showed Italian business morale fell in December to its lowest level for two years. National statistics office ISTAT said a fall in orders, higher inventories and a deteriorating production outlook had hit confidence.

Meanwhile, Italian producer prices rose 0.1pc month-on-month in November, and 4.2pc year-on-year.

The Telegraph