Stability fund in focus as Italy remains under pressure

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The Independent Online

Italy once again found itself at the centre of the European debt storm yesterday, with Rome's cost of borrowing scaling fresh records as eurozone finance ministers gathered in Brussels to agree on steps to bolster the currency bloc's bailout fund.

Italy faced interest rates of 7.89 per cent to borrow money for three years by selling new bonds, a sharp increase from the 4.93 per cent interest demanded by investors in October. It also faced higher rates to borrow for 10 years, paying 7.56 per cent when it issued new bonds yesterday, against 6.06 per cent in late October.

The soaring interest rates added to pressure on eurozone finance ministers, who last night began meetings on the crisis in Brussels. Increasing the power of the €440bn European Financial Stability Facility – the currency bloc's bailout fund – is among the key items on the agenda at the gathering, which concludes today. But there were signs that, with market conditions deteriorating, Europe might have to seek additional support from the International Monetary Fund.

"We will have to look at the IMF, which can also make available additional funds for the emergency fund," the Dutch finance minister Jan Kees De Jager said, adding: "We have talked about [leveraging the bailout fund] through private money, but it would be two or two and half times an increase, so not sufficient and we have to look for other solutions to complement the EFSF, and that in my mind will be the IMF."

In another development, a French newspaper reported that the Standard & Poor's ratings agency could change its outlook on the country's top-notch credit rating to negative. The agency declined to comment on the report.

Yet, despite the uncertainty across the eurozone, stock markets rose, with analysts pointing out that, although it faced higher interest rates, Italy was able to attract a good level of demand from investors. "Great relief, it's all done," Marc Otswald, a strategist at Monument Securities, said, adding: "We will never get away from the point that this is not sustainable in the long run."