Italy Moves to Introduce Balanced Budget Amendment
Italy saw its borrowing rates skyrocket in a big auction of bonds Tuesday as Premier Mario Monti put the finishing touches on his new lean government of technocrats, tasked with getting the country's enormous debt under control to avoid a catastrophic default.
Though Italy easily raised €7.49 billion ($10 billion), it had to pay more to investors to get them to open their wallets.
The yield on Italy's 3-year bonds surged to 7.89 percent in Tuesday's auction, a full 2.96 percentage points higher than last month, while yields on 10-year bonds spiked to 7.56 percent, up 1.5 percentage points from October. Both rates are unsustainable for very long, on par with levels that forced other eurozone governments to seek bailouts.
Part of the reason for the high yields is uncertainty over Monti's government. He named ministers two weeks ago but appointed 28 vice-ministers and undersecretaries only Tuesday, acknowledging that it has taken him more time than planned to complete his government.
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 that's threatening the future of the euro as well as the global economy.
The new government is charged with coming up with additional austerity measures followed by deeper reforms.
"If we do good work, we will help Italy get out of a very difficult situation, and perhaps we'll also help the political forces that have given us their trust to re-establish a more serene climate among themselves, and reconciliation with public opinion," Monti said.
Italy has debts amounting to €1.9 trillion ($2.5 trillion), or some 120 percent of its national income. The country, which is the eurozone's third-largest economy, is considered to be too big to be bailed out under current rescue arrangements.
An Italian default would create devastating consequences for the eurozone, and send shockwaves throughout the global economy.
Monti called the new team "lean and strong," noting that the Cabinet is smaller than the previous administration of Silvio Berlusconi, who resigned after proving unable to get his fractious coalition to back necessary reforms.
Monti said part of the delay in naming the government was due to the fact that a number of recruits had to be persuaded to leave career tracks and more lucrative jobs to join a government tasked with reforming nearly every aspect of public life.
In one sign of progress, Italy's lower house of parliament was preparing Tuesday to introduce an EU-backed measure to amend the constitution to require a balanced budget.
The move is a first step in a long process. The amendment must be approved twice in both houses, the second time after a six-month interval.
Monti, who is also finance minister, was headed to Brussels for a eurozone finance ministers meeting Tuesday evening aimed at devising convincing measures to save the 17-nation euro.
Source: Associated Press
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