Euro Crisis Grows in Italy as Bond Auction Fails
First it was Ireland, then it was Portugal, and lastly it was Greece that needed bailouts of their sovereign debts. Today, Italy crossed that magic number 7, again. Seven percent is like crossing the Rubicon for bond interest rates. Once a country hits that number, a bailout is right around the corner.
Italy sold inflation-linked bonds for 7.3 percent in their Treasury auction. The last time Italy sold these same bonds was in March of 2010. Back then, it paid 2.19 percent and demand was 2.16 times the amount sold. Today's demand was barely 75% of the amount that Italy wanted to sell. That in effect is a failure to auction Italy's debt.
The cost to borrow money has skyrocketed in Italy. It's the highest in 14 years as the viability of the united currency system in Europe appears on the brink of failure. Italy is the second largest debt market in Europe.
The new Prime Minister Mario Monti is almost ready to put additional budget cuts on the Italian government's spending. Currently, Italy's debt is 1.9 trillion Euros and he hopes that the economy will be revived. Sadly, cutting government spending tends to have the alternate effect on economies.
On Tuesday, the Italian government faces its sternest test as it tries to sell up to 8 billion euros at three maturities, including a 10-year offer.