Italy’s borrowing costs soared at a closely watched bond auction on Thursday as investors worried by the euro zone debt crisis and an impasse over the U.S. debt ceiling exacted a high risk premium.
The 8 billion euro ($11.4 billion) auction was conducted in volatile markets made more feverish by rumors, denied by Italian politicians, that Economy Minister Giulio Tremonti was preparing to resign.
The pressure on Italian stocks and bonds reflected both concern about Rome’s ability to cut its sovereign debt — second only to Greece’s in Europe at 120 percent of annual output — and doubts over whether last week’s summit of euro zone leaders found a durable solution to the Greek debt crisis.
Criticism of the latest euro zone bailout plan for Athens has surfaced at the International Monetary Fund, as well as among European economists and market analysts, who say it does too little to reduce Greece’s 340 billion euro debt.
A Reuters poll of 55 economists showed a majority felt that while the rescue package was a step in the right direction, it was not a turning point from which the crisis would be resolved.
Cyprus may be next in line for a bailout after its cabinet resigned on Thursday over a fatal munitions blast that destroyed the island’s main power plant and compounded its economic problems, which include heavy exposure to Greek debt.
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