Italy collapse would be the 'end of the euro' France and Germany have warned that a blow-out in Italy's giant debt mountain would signal "the end of the euro." Italy had to pay record rates to raise 10bn this morning, while France and Germany warn that a blow-out in its giant debt mountain would signal "the end of the euro." Meanwhile, EU Economic and Monetary Affairs Commissioner Olli Rehn has upped the pressure on Italian Prime Minister Mario Monti's new government, calling for "an ambitious timeline" on economic reforms. "Italy is faced with formidable challenges," Mr Rehn told Italian lawmakers during a visit to Rome. "The new government needs to deliver on fiscal consolidation and adopt bold measures to re-launch growth," he said. ''Full and effective implementation will be key," he said, adding: "It would be essential to give strong signals to citizens and markets with a clear and ambitious roadmap for reform and an ambitious timeline." In its bond auction, Italy was forced to pay a rate of 6.504% on bonds due in six months and 7.814% on bonds due in two years - dangerous levels that analysts say could drive Italy insolvent within months. A day after a summit in Strasbourg with German Chancellor Angela Merkel and French President Nicolas Sarkozy, Mr Monti's press office reported the two leaders had said a debt collapse in Italy would be "the end of the euro." Ms Merkel and Mr Sarkozy "said they were aware that a collapse of Italy would inevitably be the end of the euro, stalling the process of European integration with unpredictable consequences," it said in a statement. Mario Monti promised the two leaders that further fiscal consolidation in Italy "will be implemented rapidly with measures to boost growth." Commissioner Rehn is this afternoon meeting Mr Monti, who was installed on 16 November after market pressures and a parliamentary revolt ousted his predecessor Silvio Berlusconi. Italy has been forced to agree to auditing of its books by the European Union and the International Monetary Fund and the European Commission has said more austerity measures may be needed to balance the budget by 2013. A first report from the monitoring mission is due on Tuesday, Mr Rehn said. Italy, the eurozone's third-biggest economy after Germany and France, passed two budget austerity packages earlier this year when fears over its giant debt and sluggish economic reforms began rattling the markets. Mario Monti has promised rapid action to slash the debt and boost growth and has wide public support but has yet to launch concrete reform plans. Italy's debt emergency has set off alarm bells around the world over concerns that it could break the eurozone. Investors are fretting over the apparent failure of proposals to introduce Eurobonds - which would help weaker eurozone economies by spreading the risk - and turn the European Central Bank into a lender of last resort. Concerns about Europe's health were underscored this week when Germany drew bids of only 3.9bn for a 6bn bond auction. http://www.rte.ie/news/2011/1125/eurozone.html The only answer is to dismantle the welfare state, but they may have waited too long. If Italy goes, the EU goes. That much seems certain. _
"Awful" Italy debt sale heightens euro zone stress (Reuters) - Italy paid a record 6.5 percent to borrow money over six months on Friday and its longer-term funding costs soared far above levels seen as sustainable for public finances, raising the pressure on Rome's new emergency government. The auction yield on the six-month paper almost doubled compared to a month earlier, capping a week in which a German bond auction came close to failing and the leaders of Germany, France and Italy failed to make progress on crisis resolution measures. Though Italy managed to raise the full planned amount of 10 billion euros, weakening demand and the highest borrowing costs since it joined the euro frightened investors, pushing Italian stocks lower and bond yields to record highs on the secondary market. Yields on two-year BTP bonds soared to more than 8 percent in response, a euro lifetime high, despite reported purchases by the European Central Bank. In a sign of intense market stress, it now costs more to borrow for two years than 10 on the secondary market and borrowing costs for whatever term are above the 7 percent threshold, over which Italy is likely to need outside help if they do not subside. "The pricing is awful," said Padhraic Garvey, rate strategist with Dutch bank ING in Amsterdam. "The object of the exercise this morning was to get the job done and they've done that, but that's about the only positive thing to say." Investors' attention will now turn to a bond sale of up to 8 billion euros that Italy is planning for next Tuesday. "For the BTP auctions next week, we'll have more of the same they'll probably get it done at a concession," Garvey said. Italy's new technocrat government, which took power last week, is at work on structural reforms to revive the stagnant economy but markets are looking for quick and effective responses from European policymakers, such as a greater involvement of the European Central Bank. Traders said the ECB was buying Italian and Spanish bonds in an attempt to shore the market up. But given its reluctance to prop up high-debt euro zone governments, its bond-buying program has been conducted intermittently, and never powerfully enough to provide more than short-term stability. New Bank of Italy Governor Ignazio Visco said short-term measures to tame Italy's budget deficit would not be enough to solve the country's economic problems and only structural reforms will generate growth. At an annual average rate of just 0.3 percent over the past decade, the Italian economy has grown faster than only a handful of other countries across the world. Real purchasing power has fallen 4 percent in 10 years. BIG SPRING DEBT BILLS Since being thrust to the fore of the euro zone crisis in July, Italy has always managed to attract sufficient demand at its auctions. But record high yields threaten Rome's planned gross issuance of 440 billion euros for 2012 as interest payments on the country's 1.9 trillion euro debt pile rise. Analysts say that, at current yield levels, the euro zone third-largest economy risks losing market access as redemptions totaling a massive 150 billion euros for the February-April period approach. The euro, already trading around a seven-week low, inched down after Friday's auction. European stock markets remained in negative territory for the day with the Milan stock-market the worst performer. The six-month yield nearly doubled from an auction level of 3.5 percent a month ago. By comparison, Spain paid 5.2 percent to sell six-month paper at a much smaller short-term auction earlier this week, after elections handed power to an austerity-committed conservative government. Italy also sold 2 billion euros of zero-coupon CTZ bonds at a euro era record high yield of 7.8 percent, up from 4.6 percent at the previous sale. http://www.reuters.com/article/2011/11/25/us-italy-bonds-auction-idUSTRE7AO0EL20111125 Fyi......... _
Can you explain to me why exactly? Just ban Italy's central bank from buying more government debt. If that is done, how would Italy's default lead to a collapse of the Euro?
You can ban even the very goverment debt! So what? Italians have to pay their debt.The question is where to take money from? The only few countries that produce something in EU are Germany, France and Italy. Euromaker is Germany but her funds are not infinite. Suppose Germany helps Italy thining out her own resourses? However Germany has her own S&R plans, social policies and producing plans that require solid earmarking.If Germans won't have enough money to feed their most effective economy in Europe they'll have to roll down their economy, stop producing goods tp sell them and get money back. This reverberates in Stock Exchanges and will take money out weakening German economy! On the other hand the better part of EU toda is a bunch of countries that produce nothing but use Euro and want to have a level of life of the most European economies! Who will give them money? Of course you may start printing Euros. However this is a way to poverty! ?
The Italians can repay their debt in their own time. They may or may not be able to pay the obligated interest on those loans! If the Italian government is irresponsible, would it not be a good thing if they defaulted? No one would ever lend them money again, and things would be just as they should.
