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1st Jul 2022

Italian bonds shatter 7% bail-out ceiling

  • Italy is facing a twin fiscal and political crisis (Photo: Alessandro Marotta)

The interest rate on Italian 10-year government bonds breached seven percent on Wednesday, shattering the psychological bail-out ‘ceiling’.

Greece, Portugal and Ireland all had to seek multi-billion-euro bail-outs when their 10-year bonds exceeded this threshold.

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The cost of government short-term borrowing for the country exceeds even these levels, with one-year bonds having soared to above eight percent.

The development has EU leaders scrambling to respond to the deterioration of the situation in the markets regarding Italy, as the eurozone's rescue fund is far too small to be able to bail out Italy, Europe's fourth largest economy. Rome owes creditors some €1.9 trillion and needs to roll over debts amounting to more than €300 billion in 2012.

Markets have pummelled Italy in recent days, but even an announcement by Prime Minister Silvio Berlusconi signalling that he will resign has not been sufficient to put an end to the turbulence.

On Tuesday evening, Berlusconi announced he would step down after he failed to win an absolute majority in the Chamber of Deputies earlier in the day.

On Wednesday, the Italian leader, who has been chased by sex scandals and corruption charges throughout his tenure, said that Angelino Alfano, the secretary of his political party, the People of Freedom, is his chosen successor.

Alfano, who served as justice minister from 2008-2010, pushed through a law that delivered immunity from prosecution to the prime minister and three other high-ranking offices. Widely seen as an attempt to save the prime minister from trial, the law was declared unconstitutional by the country’s top court in 2009.

Meanwhile, the Italian president, Giorgio Napolitano, declared that the austerity measures and structural adjustment demanded by core EU powers are to be approved within days.

Napolitano is now in discussions with various political parties aiming to find a solution to the political crisis. Early elections, a new centre-right government involving a shuffling of the current conservative coalition, or a national unity government bringing on board the centre-left opposition are the three options on the table.

"Within a short time, either a new government will be formed which can take any further decisions needed with the support of parliament or parliament will be dissolved and an election campaign will begin within the tightest time-frame," he said.

The European Commission for its part would not be drawn on commenting on the situation, with spokeswoman Pia Ahrenkilde telling reporters on Wednesday: “I have no comment on what is still an internally evolving situation in Italy.”

The EU executive’s economy spokesman, Amadeu Altafaj-Tardio told EUobserver however that core EU powers are not pressing the Italian political class to form a national unity government as it did in Greece. Under heavy pressure from the commission, the ECB, the IMF, Paris and Berlin, the centre-left administration of George Papandreou was decapitated over the weekend.

However, in September, following a downgrade in the country's credit rating by Standard & Poor's. "There is a clear need to build national consensus at the political level but also between social partners [EU jargon for trade unions and employers] to adopt and implement an agenda of growth as a matter of urgency," he said at the time.

A team of commission inspectors however arrived in Italy on Wednesday to monitor the implementation of the government’s new austerity measures and structural adjustment.

Report: Italy to be put under IMF surveillance

Reuters reports that Italy has agreed to be put under surveillance by the International Monetary Fund (IMF) as part of a plan to restore market trust in the eurozone's third-largest economy.

Italian 'national consensus' urgent, says Brussels

The European Commission has called on Italy to build a "national consensus" between political parties and with the unions to assure the implementation of austerity measures and structural adjustment in the wake of a surprise downgrade in the country’s credit rating by Standard & Poor’s.

Monti groomed to be Italy's new PM

In a move that is widely considered to lay the groundwork for a transitional government, Italian President Giorgio Napolitano has appointed Mario Monti senator for life.

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