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THE ITALIAN GOVERNMENT has been pushed closer than ever to requiring emergency funding from the EU and IMF this morning, after two separate bond auctions saw its cost of borrowing rise to unprecedented levels.
The treasury raised €10bn through the auction of two different bonds, but was forced to agree huge interest rates in order to do so – sending the price of borrowing on more long-term borrowing to their highest levels of the euro era.
Most of the cash – some €8bn – was raised through the issue of six-month bonds, on which the treasury was forced to pay 6.504 per cent interest – up from just 3.535 per cent on the last similar auction.
The other €2bn was raised in the sale of bonds maturing in two years’ time – which now fetch an all-time record of 7.814 per cent, up from 4.628 per cent the last time similar bonds were sold.
The levels are universally considered unsustainable – and have sent the yield on 10-year bonds, which are sold second-hand elsewhere, up to 7.33 per cent: close to their all-time high set two weeks ago.
The events put further pressure on Italy, which requires low interest rates in order to keep on top of its €1.9 trillion mountain of national debt.
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If the ECB don’t get their finger out and start spending seriously in the markets Merkel & co will not have to worry about treaty changes because the € will no longer exist.
Sooner the better …… sick of this constant drip drip bad news .. and no sight of things improving head on crash and then start rebuilding from the ashes only way to go forward !!
A bundesbank economist has compared using the ECB to resolve this crisis as “drinking seawater to quench a thirst.”
In a week where some in the US are claiming that the Fed has no choice but to launch QE3, this metaphor would seem particularly apt.
and now, the end is near…
Treaty changes are going to deal with the debt, neither will austerity. This is a problem that can only be solved by the ECB throwing lots of cash at it. Italy is too big to fail but that doesn’t mean that it will not. In the wings waiting for their hour in the news, are France, Belgium, Austria and Spain and nearly half the banks in Germany, including its 2 largest.
I would not be surprised if the Christmas Holidays, where there will be very low trading and several days off, will be taken as a chance to make some radical changes, that would be the logical thing to do, but as we have seen the EU and Merkel and Sarkozy et al, are Eurostate fanatics.
The Euro, up there with plans for having conquered Moscow before the winter sets in.
This is probably a stupid question, but where does the ECB get all the cash, by printing it? Can you devalue the Euro?
By printing it, or in reality,electronically creating it. It will have the effect of devaluing the Euro but the alternative is vast unplanned defaults but an agreed break up of the Euro may work as well, the core block around Germany go to a Großdeutschland Euro and the rest remain in the Euro, which will devalue over night. They reckon that the ECB would have to print about 2 trillion, that could cause very significant inflation, as internationally people are avoiding the Euro. It could cause inflation in double digits, maybe treble, who knows. People who are aware of this are still calling for it because it is the last throw of the dice.
Having all your savings in Euro cash right now may not be the best thing, go for commodities, well funded blue chips and a bag of other currencies, such as Norwegian, they have vast reserves of cash, gold and oil.
They could be some of the less painful options, they key problem is that solutions will be avoided till they are too late.
Does Italy not have the 4 th biggest gold reserves in the world,why are the out with a begging bowl.sell the stuff, I too am getting very fed up with all this.All I see is all European Government screwing their tax payers
I must admit that I am missing something here… if a 7% interest rate is going to break a country, how come bailed out banks charge over twice that? just asking…
have your say