Italian borrowing rates hit new high
MILAN (AP) — Italy's borrowing rates hit a new euro-era high Wednesday as a global market sell-off reignited fears that the debt crisis will engulf the eurozone's third-largest economy.
Premier Silvio Berlusconi will address parliament on the state of the economy later in the day, but opposition parties called for him to step down, saying his lack of economic credibility in the markets was part of the problem.
Spain was also under the market spotlight, forcing Prime Minister Jose Luis Rodriguez Zapatero to delay his vacation by a day to monitor the bleak scenario in the markets.
In morning trading, Italy's 10-year borrowing rate spiked to 6.21 percent before easing somewhat, while Spain's rose to 6.34 percent, a little shy of Tuesday's euro-era high of 6.45 percent.
The revival of the debt crisis is largely related to a global sell-off by traders of any investments that appear risky — such as the bonds of Italy and Spain.
Whereas both countries could continue borrowing at their current rates, their financing costs would increase, adding to the debt pile that is the source of market worries.
The fear is that the global market turmoil will push the two countries closer toward needing a bailout.
"The upward march in Spanish and Italian bond yields is evidence of the relentlessness of the sovereign debt crisis," said Jane Foley, an analyst at Rabobank International.
Italy's euro70 billion ($99 million) austerity package passed last month aims at balancing the budget by 2014 but has done little to calm markets.
Opposition parties, commentators, economists and the non-partisan president all have called for deeper reforms to encourage investment and growth and regain market confidence.
"At this moment, it is up to the political forces, both in the government and opposition, to work with civil society to make choices to decisively stimulate the indispensable growth of the economy and employment," President Giorgio Napolitano said in a statement.
Finance Minister Giulio Tremonti, meanwhile, traveled to Luxembourg to talk with Jean-Claude Juncker, the chairman of the Eurogroup meetings of eurozone nations. Tremonti on Tuesday evening spoke with the EU's monetary affairs commissioner Olli Rehn over the phone.
In Rome, the turmoil added political pressure on Berlusconi. The main opposition party leader Pier Luigi Bersani said there was "global skepticism" of Berlusconi, while his deputy, Enrico Letta, said it was time for the premier to step down.
"He cannot be the one to propose solutions, seeing that he is a big part of the problem," Letta said.
High yields show the additional interest investors demand to hold the country's debt, and underline how a government's financing costs could rise when they need to tap bond markets again. As fears of default increase, interest rates rise and make paying debt even harder in a vicious circle.
Italy has debt of 120 percent of economic output, but had been viewed for months with calm by bond markets. The country has low levels of private debt and has not had the real estate boom and bust that caused trouble for the United States, Spain, and Ireland.
But it suffers from chronically low growth and investors doubt the government's willingness and ability to push through painful economic reforms.
Spain, meanwhile, is struggling to recover from nearly two years of recession triggered in large part by the collapse of an overheated real estate sector. Burdened by a swollen deficit, the country's jobless rate stands at a eurozone high of nearly 21 percent.
Zapatero has called early general elections, largely due to pressure from the financial crisis and because he wants a new government to manage the troubled economy from the start of the year.
By late morning in Europe, the Milan Stock Exchange had recovered from several days of massive losses to trade 0.3 percent higher, while Spain's main index was 1.1 percent higher.
Pan Pylas in London, Gabriele Steinhauser in Brussels and Ciaran Giles in Madrid contributed to this report.