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Italy pays high price in debt sale up to 4.93% on 5 year debt

Euro debt 15 July 2011.JPG

Italy's Senate has approved a crucial austerity package and got a key bond auction away as it moved to persuade investors that the debt-laden country will not become the next victim of the eurozone crisis.

The measures were passed 161-135 as Italy fast-tracked approval of the package and increased its size to €48bn (£42bn) to calm investors after markets tumbled this week on fears over the country's ability to sustain debts equivalent to 120pc of gross domestic product.

The extent of investors' concerns was apparent in a €5bn (£4.4bn) bond auction earlier on Thursday in which the government was forced to pay gross yields of 4.93pc and 5.9pc respectively to issue new 5- and 15-year debt - the highest in three years.

Italy is under pressure to show markets it can bring its accounts in order and promote growth, or risk being dragged into the debt crisis that has hit Greece, Ireland and Portugal.

The auction was seen as a test of ability of the eurozone's third largest economy to tap into the bond markets and keep refinancing one of the world's heaviest debt burdens.

However, while it brought some respite it did not dispel fears over economy's underlying problems and yields on 10-year Italian government bonds, which had fallen back from all-time highs of 6pc earlier this week, rose again to 5.6pc.

Giulio Tremonti, the finance minister, told the Senate that the austerity package, which was strengthened by reducing tax breaks in 2013 and 2014, seeks to balance the budget by 2014 and contains 16 measures to spur growth.

"Without the balanced budget, the monster of debt, which comes from the past, would devour our future and that of our children," he said.

A final vote on the austerity package is due in the lower house of parliament on Friday.

Stock markets slipped on Thursday in the face of a threat by Moody's to downgrade the US because of the failure of the White House and Congress to raise the $14.3 trillion borrowing limit and avoid a default and Europe's debt crisis.

Thanks to the The Telegraph for this article.

It would appear that the cracks are becoming ever wider in Eurozone.....the scene is set for record breaking silver prices.

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sk chart 22 May 2011.JPG

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SK logo 26 May 2011.JPG

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