Italian Prime Minister Mario Monti announced his new government has plans to get Italy out of its recession while calling on other nations to mount a "united response" to the eurozone debt crisis.
Monti made the statements at the prime minister's traditional end-of-year press conference. He replaced Silvio Berlusconi last month.
On Thursday, the government raised $8.96 billion in an auction of government debt. However, it had to pay high interest rates to do that. The yield on 10-year bonds was 6.98 percent. That is an unsustainably high rate of interest for the government to pay borrow.
Although Italy is the third-largest economy in the eurozone, investors are wary because of a combination of high debt, increased borrowing costs and low growth.
Therefore, despite two recent successful bond auctions of its government debt, Monti said that he does not think the period of financial instability has ended. He stressed the fact that the problems of the financial markets in Italy are linked to the general financial problems in the rest of Europe.
However, he emphasized that the high interest rates investors demand of Italian government bond issues were not because of actual conditions there so much as because of the concerns about the overall economic conditions of the eurozone as a whole.
He called on all European leaders to mount a "united, joint and convincing response" to boost economic growth.
Monte announced that his government was preparing an economic plan to spark growth in the Italian economy. He said that his plan focuses on liberalizing the Italian jobs market while boosting competition. Monte said that he would give the full details of his program to other leaders at the European Union conference on Jan. 23.
Moreover, he said that although Italy had been headed toward a debt crisis as bad as the one in Greece that they had adopted measures that averted things getting that bad. Investors had been worried that Italy might need a bailout like Greece, Ireland and Portugal.
Italy's government finds borrowing costs remain high
Italy's borrowing rate came down slightly at its latest bond auction, but still remained high with investors worried over the eurozone debt crisis.
Interest rates on 10-year bonds dropped by only 0.5 percentage points from the yield prices on debt auctioned in November. However, economists said that the important thing was that there were still buyers willing to invest in Italy's government bonds.
The Italian government auctioned off $8.96 billion worth of medium and long-term debt on Thursday with interest rates of 6.98 percent on 10-year bonds.
There was better news for the costs of short and medium-term borrowing with interest on new three-year debt falling to 5.62 percent from 7.89 percent paid last month. It auctioned $11.8 billion of short-term debt on Wednesday.
It will have to auction more bonds to raise enough money within the next few months to repay $208 billion in debt between February and April.
It does not help that the euro has lost value. After the auction, the euro fell in value in currency pair trading to its lowest level against the dollar in 15 month at $1.287 before rising to end at $1.29 on Thursday.
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