ITALY had to swallow record interest rates at an auction of 15-year bonds yesterday as the IMF warned that Eurozone policymakers must come up with a quick and clear solution to avoid dragging Ireland down with Greece.
The sale came just ahead of a budget vote for Rome, which saw 135 senators oppose a majority of 161 who voted through an austerity package that is crucial to convince markets of the commitment to debt reduction.
The fiscal plan involves €9.5bn (£8.4bn) in cuts by 2014, a 10 per cent cut in funding for political parties, a €1.7bn fuel tax hike and a promise to scrap a range of tax breaks if revenue targets are not met.
Investors had forced yields up to a high of 5.9 per cent at the Italian sale, which saw Rome raise nearly €3bn.
Markets slumped after the sale, reflecting nerves about how close yields have risen to the seven per cent threshold that is seen as unaffordable for Italy’s finances.
The FTSE 100 lost 0.92 per cent per cent, the Eurostoxx 50 dropped 0.73 per cent and the euro lost 0.75 per cent versus the dollar by late evening.
Meanwhile, the IMF slammed European ministers for exacerbating the crisis with a lack of leadership, calling the EU’s response “insufficient” so far.
IMF officials were wrapping up an otherwise optimistic assessment of Ireland’s finances, calling the government’s progress “on track and well-financed” and praising its “steadfast” commitment to its fiscal programme.
Euro leaders will meet again next week after negotiations failed on Monday, with the question of private sector burden-sharing still a key bone of contention in talks between the European Central Bank (ECB) and Europe’s main paymaster, Germany.