Italian borrowing costs jump back above 7%

24th November 2011, Comments 0 comments

The yield on Italian 10-year bonds, the broad cost of government borrowing, soared back above 7.0 percent Thursday after French, German and Italian leaders agreed not to widen the role of the European Central Bank to support weaker eurozone states.

At 1500 GMT, the rate of return on benchmark Italian government 10-year bonds rose to 7.087 percent from 6.956 percent late on Wednesday, hitting levels widely held to be unsustainable for the long-term.

"European leaders promised today better coordination of eurozone economic policy, in other words on medium-term decisions that produce results in the long term," said debt strategist Patrick Jacq at BNP Paribas bank.

"However, the market is looking for short-term solutions and essentially for a greater role for the ECB. This meeting was rather disappointing," he added.

France had urged Berlin to allow the ECB to become a lender of last resort, with the firepower to protect debt-ridden eurozone members from falling victim to the bond markets, but German Chancellor Angela Merkel held firm.

President Nicolas Sarkozy of France and Prime Minister Mario Monti of Italy stood by her side at a news conference in Strasbourg as she said any changes to EU treaties would not enlarge the role of the ECB, a position which some observers and traders have warned could threaten eurozone survival.

Any "eventual modifications to the treaties will not concern the duties of the ECB, which concern monetary policy and monetary stability," she added.

With a tight smile, Sarkozy agreed: "All three of us said that with respect for the independence of this institution, one should refrain from positive or negative demands of the ECB."

© 2011 AFP

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