The cost of borrowing for Italy has reached a record high, despite the recent positive meetings for the eurozone crisis.
At auction on Friday Italy paid 6.06% for ten years. This is the highest rate since the euro was brought into play in 1999. The rate jumped from a previous record high of 5.86%, which was auctioned just last month.
Stock markets didn’t manage to increase in value after Thrusday’s global rally. shares in many large European banks actually fell on Friday, after what was a positive day for the banks on Thursday.
Many economists regard an interest rate of 6% or higher to be quite unsustainable. As well as this record high rate, the Italian Treasury failed to meet their target for borrowing. They had wanted to sell about €8.5bn (£7.5bn) worth of bonds. The Treasury only managed to sell €7.9bn.
Italy, one of the PIIGS, currently has the highest debt in the eurozone. This is at a time of little economic growth. However, unlike Greece, who are also laden with huge debt, Italy’s debt is owed to it’s own people. This could give them a bit of lee-weigh when it comes to repayments, as the Italians would be more willing to help their own economy compared to external investors.
Once the auction results had been announced by the Italian treasury the value of the Italian stock market fell.
Euro leaders have been working hard to try find a solution to the eurozone debt crisis. It has resulted in some banks taking a 50% hit on Greek debt. Euro leaders also want banks to raise more capital to protect them from defaulting in the future. This would mean governments don’t have to bail the banks out like they had to in 2008.
Bank stocks had been on the rise at the start of Friday, however, by the end of the day they had fallen all over Europe by as much as 5.2%.