March 5, 2021

Pressure Builds on Italy and Spain Over Finances

The Italian economy minister, Giulio Tremonti, called a meeting of the country’s financial authorities Tuesday to discuss the recent market turmoil, Reuters reported, citing an unidentified official. The Italian Treasury did not respond to calls seeking comment.

In Madrid, meanwhile, Prime Minister José Luis Rodríguez Zapatero delayed the start of a planned vacation to the southern region of Andalucia. Reuters quoted the secretary of state for communications as saying the prime minister wanted to “more closely monitor the evolution of the economic indicators.”

The lack of investor confidence in both countries is threatening to push their borrowing costs to unsustainable levels and drag the eye of the fiscal storm away from Greece, Portugal and Ireland.

The yield on 10-year benchmark Italian bonds was up 0.12 percentage point, at 6.11 percent, in afternoon trading in Europe, after rising as high as 6.21 percent in the morning, the highest level since November 1997, according to Bloomberg News. That increased the difference in yield, or spread, over equivalent German securities, to 3.71 percentage points, the widest gap — an indicator of risk — since before the euro was introduced in 1999.

Spanish 10-year yields were up 0.09 percentage point, at 6.25 percent, in afternoon trading, after rising as high as 6.39 percent. The spread over the 10-year German bond rose to 3.84 percentage points.

Last Friday, the same day Moody’s Investors Service put Spain on watch for a possible downgrade, citing “funding pressures,” Mr. Zapatero called early general elections for Nov. 20. That raised the prospect of having a lame-duck administration in power until the end of the year.

Chiara Corsa, an Italian economist at UniCredit in Milan, said the meeting Tuesday in Rome appeared to be an emergency response to market volatility. She said she was skeptical about whether it would produce any meaningful steps to address investor concerns.

Prime Minister Silvio Berlusconi is scheduled to address Parliament on Wednesday to discuss the economic situation.

He has been mostly silent in recent weeks as investor sentiment against the country has soured. His administration has appeared divided in the wake of several heavy defeats in local polls.

There have also been doubts about the future of the economy minister, Mr. Tremonti, a budget hardliner who has appeared increasingly estranged from Mr. Berlusconi. Mr. Tremonti also faces the distraction of a corruption investigation into a former aide surrounding the rental of a luxury apartment in Rome.

Ms. Corsa, the economist, said the prime minister was expected to come up with a statement of intent for increasing the country’s growth potential. There has also been speculation that the government might introduce new measures to tax personal wealth as a means of bolstering revenue in the near term.

The volatility might be calmed if the European authorities are able to quickly implement their recent decision to use the European Union’s bailout fund, known as the European Financial Stability Facility, to buy Italian bonds in the secondary market. But it remains unclear how soon that might occur, analysts said.

“Italy doesn’t need a bailout,” Ms. Corsa said. “It has room to sustain these levels of interest rates for some time. But if yields keep rising, the situation will worsen.”

The meeting in Rome was bringing together representatives from the Economy Ministry, the Bank of Italy, the market regulator Consob and the insurance authority, according to Reuters.

In July, the government approved a €48 billion, or $68 billion, package of austerity measures aimed at helping to bring the budget into balance by 2014. But that failed to improve overall sentiment, which is dragged down mainly by the country’s chronically weak growth.

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