Despite the deal contained the Eurozone debt crisis, Italy's cost of borrowing has a record high. On Friday, at an auction Italy paid 6.06% to borrow for 10 years since the euro was created in 1999. The rate edged over 5.86% which was the previous record high-at its last auction a month back. the auction emerged as stock markets were not successful to foolow up on their global rally on Thursday, with shares in many European banks narrowing.
An interest rate of 6% and more adds to unsustainablity. The Italian Treasury too failed to live up to its borrowing target, having hoped to sell as much as 8.5bn euros ($12.1bn, £7.5bn) of bonds. They could manage to sell only 7.9bn euros of the 10-year benchmark debt.
Amidst flat growth, Italy has the highest total debt in the eurozone. However it has benefits, as most of its debts are owed to its own people rather than outside investors. after the auction results were announced losses on the Italian stock market sparked. On Thursday, eurozone leaders agreed to expand the single currency's bailout fund to 1tn euros, and to take measures to recapitalise banks. To protect themselves against losses resulting from any future blunders banks must raise more capital, as per the terms of the Brussels deal thrashed out by EU. At the same hour some banks accepted a loss of 50% on their Greek debt.
"The best we can say is that the EU have engineered a temporary reprieve but there is no guarantee of a final resolution to the crisis," said Neil MacKinnon of VTB Capital.
