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Andrew Medichini/AP
Bond Markets

Italian borrowing costs spike again as coalition talks go on

The markets seem nervous about Mario Monti’s attempts to form a government – while a Spanish bond auction also goes badly.

MARIO MONTI has not formally taken power yet – but already his new government will have its work cut out in trying to make sure that Italy is not forced into needing an EU-IMF bailout.

As Monti continues his talks to cobble together a new coalition of technocrats, which will take over from Silvio Berlusconi and try to enact yet more austerity measures, the cost of borrowing for the Italian government has returned to high levels.

At 2pm Irish time the cost of a 10-year bond – that is, the interest that Italy would have to pay for a 10-year loan – had fallen only marginally below the 7 per cent mark, having earlier bobbled above 7.07 per cent.

The 7 per cent mark is seen as a key one, and one beyond which any borrowing is prohibitively expensive – forcing Italy to go to the EU and IMF in order to plug the gap between government income and spending.

The cost of borrowing also grew for Spain, which will now have to pay 6.3 per cent for its borrowings – close to the highest price the country has had to face in the euro era.

Pressure has grown on Spain today after a bond auction earlier this morning went less smoothly than the country would have hoped.

Spain raised €3.16bn through the auction of 12-month and 18-month bonds – having to pay over 5 per cent interest for each, compared to 4 per cent for a similar auction a month ago.

Greece also issued some short-term bonds in a bid to see how much it would have to pay – raising €1.3bn in three-month paper with an interest rate of 4.63 per cent.

Italy offloads €3bn in bonds after appointment of ‘Super Mario’ Monti

Debt crisis is Europe’s worst moment since WW2 – Merkel