Italian bonds come under renewed pressure

The market continued to put pressure on Italy yesterday, with Rome's borrowing costs rising back to levels not since seen the European Central Bank (ECB) stepped in to support its bonds in August.

The interest rate on the country's 10 year fixed-rate bonds rose above 6.1 per cent, against 5.9 per cent last week and as low as 4.9 per cent in mid-August. It has remained below 6 per cent since the ECB intervened in the bond markets in early August.

The sense of crisis was also apparent in the widening spread between Italian and German bonds. The premium that investors demand to hold Italy's debt over Germany's rose to as much as 410 basis points, with the focus firmly on Prime Minister Silvio Berlusconi's ability to implement the reforms needed to put his debt-laden country on a more sustainable path.

Continental stock markets were similarly unsettled, with the Milan exchange down by 3.4 per cent last night. With the euphoria generated by last week's debt crisis deal looking like a distant memory, the Spanish market fell by 2.6 per cent , while the French and German exchanges were nearly 3 per cent lower.

Piling on the pressure, one of Italy's leading businessmen said the county had reached the "point of no return".

In a letter published in the Italian press, Luca Cordero di Montezemolo, the head of the Ferrari sports car business, said: "The savings of Italian people, social cohesion and Italy's membership of the euro are all at risk."

The rising borrowing costs also present a challenge for Mario Draghi, the Italian central banker who will take over from Jean Claude-Trichet as the president of the ECB today. The Italian economy is widely seen as too big to bail out, and an escalation in Rome's travails would overshadow the challenges presented by the likes of Greece or Ireland. But Mr Draghi is expected to run into renewed opposition from Germany if he seeks to ramp up the central bank's bond buying programme to soothe market jitters.