Italy pays 7.89pc for three-year loan
Italy had to offer a record 7.89pc yield yesterday to sell 3-year bonds, a stunning leap from the 4.93pc it paid in late October, and 7.56pc for 10-year bonds, compared with 6.06pc at that time.
The yields were above levels at which Greece, Ireland and Portugal were forced to apply for international bailouts, but European stocks and bonds rallied in apparent relief at the strong demand, with the maximum €7.5bn sold.
Italy has debts of €1.9trn euros -- equivalent to 120pc of national output -- and needs to refinance some €340bn of maturing debt next year with big redemptions in January.
The country, which is the eurozone's third-largest economy, is considered to be too big to be bailed out under current rescue arrangements.
"In an ideal world, these yields . . . would serve to give the Ecofin/Eurogroup a sense of added urgency, but this is a far from ideal world," said Peter Chatwell, rate strategist at Credit Agricole in London.
Part of the reason for the high yields has been uncertainty over Mr Monti's government.
Mr Monti named ministers nearly two weeks ago but appointed 28 vice-ministers and undersecretaries only yesterday. He said he has been too busy, as he has had to spend time consulting with European partners about how to deal with the crisis. But the higher yields also reflect a wider failure of eurozone leaders to come up with a coordinated response to the burgeoning crisis.
An Italian default would create devastating consequences for the eurozone, and send shockwaves throughout the global economy.
Many analysts think that Italy can absorb higher borrowing rates for a while giving it time to show that it's on the path to sort out its finances.