Berlusconi's softening on austerity plan sparks alarm
Published 31/08/2011 | 05:00
THE actions of Italian Prime Minister Silvio Berlusconi have left European bond markets on edge, but borrowing costs for Ireland continue to come down.
Berlusconi yesterday appeared to back down on elements of the country's €45bn austerity package, dropping a tax on the rich and making other modifications.
Italian bonds fell for a seventh day, the longest losing streak since February, as demand weakened at the first auction of 10-year securities since the ECB began buying the nation's debt.
German bunds advanced, paring Monday's drop, after a report showed confidence in the euro-region's economic outlook plunged in August. Italy's 10-year yields climbed to a three-week high after Mr Berlusconi's softening on the austerity plan. It was this plan that had persuaded the ECB to support the nation's bonds.
Italy sold €7.74bn of debt maturing in 2014, 2018 and 2022, but markets described the response as muted. "The market is still wary about being long Italian bonds because there's more supply coming," said a Commerzbank analyst.