The Italian treasury sold €7.5 billion of bonds, including three-year bonds at a yield of 7.89 percent, meeting demand for 1.5 times the amount on auction. The euro and European stocks were little changed after sharp gains on Monday.
At an evening session, euro-zone ministers were hoping to nail down guidelines on how to expand the European Financial Stability Facility, the main bailout fund for heavily indebted euro-zone countries. Such a step could in theory make it possible for the fund to begin buying government bonds on a large scale by early next year.
The ministers were also expected to approve the release of an €8 billion, or $10.7 billion, loan to Greece — the latest installment in its international rescue package.
Both actions have been debated for months — a reminder of the painfully slow pace of European decision making, compared to the speed with which the financial markets have battered confidence in the euro. As the crisis drags on, fears have grown that the euro currency union could collapse, with potentially catastrophic consequences for Europe and the global economy.
Yields on euro-zone government bonds, which move in the opposite direction of prices, have been rising for months amid growing turmoil and doubts about the bloc’s ability to close ranks and respond credibly to market attacks on individual countries such as Italy and Spain.
With the exception of a few countries like Greece, the finances of euro members are relatively strong in comparison with those of more stable sovereign borrowers like the United States and Britain. But the political response to the crisis has been hampered by disagreements between Germany and the European Central Bank, on the one hand, which do not want to shoulder the large cost of a bailout, and other countries that see no credible alternative.
On Monday, President Barack Obama met in Washington with top European leaders, including Jose Manuel Barroso, president of the European Commission; Herman Van Rompuy, president of the European Council; and Catherine Ashton, the European foreign policy chief. Mr. Obama urged an immediate resolution to the debt crisis, saying the issue is “hugely important” for the United States.
The yield on the three-year bonds was the most Italy has paid to move such securities since the creation of the euro, according to Reuters, and sharply above the 4.93 percent the government paid at the previous auction at the end of October. It sold 10-year bonds at a rate of 7.56 percent, 1.5 percentage point higher than last month.
Italy’s budget deficit is not huge in comparison with other developed nations, but its debt is among the world’s largest. Considering the burden of repaying that debt, interest rates of that magnitude will not be long sustainable.
The auction was held as the lower house of the Italian Parliament was preparing balanced-budget legislation, a key measure for convincing investors and euro-zone partners of its commitment to reeling in its public debt.
Also on Tuesday, Belgium sold €502 million of three-month Treasury bills at an average yield of 2.19 percent, up from the 1.58 percent it paid just two weeks ago. Demand rose to 5.61 times the amount sold from 1.45 times at the previous auction.
It also sold €513 million of six-month bills at an average yield of 2.44 percent, more than double the 1.09 percent on Nov. 8. The bid-to-cover ratio was 2.76, up from 1.85 times in the prior auction.
Belgian borrowing costs rose after Standard Poor’s on Friday cut its rating on the country’s sovereign debt to AA from AA-plus.
In addition to the turmoil that is shaking all the euro-zone countries, the agency cited Belgian’s peculiar problems, which include the fact that it has been without an elected government for the past 19 months, as well as the cost of bailing out Dexia, the French-Belgian bank that last month became the first European bank to be partially nationalized amid the euro crisis.
European ministers Tuesday were planning to address an expansion of their bailout fund, which was meant to raise money by issuing bonds backed by the stronger European countries and loan it to shakier countries facing high interest rates on their debt.
It now also plans to offer insurance of up to 30 percent to investors in some European bonds to encourage them to buy.
The head of the E.F.S.F., Klaus Regling, has said that by leveraging the roughly €250 billion at his disposal by a multiple of three or four times, the bailout fund would have a maximum value of around €1 trillion.
Meanwhile Greece’s loan has been held up by political turbulence in Athens, where former Prime Minister George Papandreou suggested a referendum on the bailout before he stepped down. In the wake of the referendum idea — which was scrapped — European leaders requested a written commitment from Greek political leaders that they accept the terms of the rescue.
Meanwhile a broader proposal for a Europe-wide solution for the crisis, focusing on much tighter rules for euro-zone nation, is expected before a meeting of European Union leaders on Dec. 9. A failure to sort out the bloc’s problems by then could have dire consequences, economists have warned.
Stephen Castle contributed reporting from Brussels.
Article source: http://feeds.nytimes.com/click.phdo?i=e2fb4e96eb311b604fa61e1a8de99323
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