Monti Says Italy’s Yield Level Caused by External Euro Concerns

Italian Prime Minister Mario Monti said the country’s elevated bond yields are a result of external concern about the future of the euro as his budget cuts have failed to ease investor tension amid a contracting economy.

The Cabinet was aiming for “a quicker drop in yields that could have helped the Italian economy recover,” Monti said today in a speech in Rimini, Italy. That didn’t happen “for a number of reasons that were not so much about Italy but due to lower confidence toward a problem-free continuation of the euro, and without the risk of any country exiting.”

Italy’s 10-year yields are at 5.79 percent, more than 4 percentage points higher than similar-maturity German bond yields and almost twice the average for the past year. Monti has been unable to close the borrowing gap even as he has overhauled the pension system, revamped labor laws and imposed austerity to bring the deficit within European Union limits this year.

Italy pays 429 basis points more than Germany to borrow for 10 years, within 90 basis points of the gap when Monti took office on Nov. 16.

As Europe’s debt crisis threatens to push Italy into an international rescue, Monti is under pressure to demonstrate the value of his austerity-focused government. Italian gross- domestic product shrank for a fourth consecutive quarter in the three months through June as Monti trimmed the budget and increased taxes.

‘Particularly Heavy’

Monti said today that over the “last few months there has been tension in the financial markets, on the government’s securities and that has been obviously particularly heavy for our country,” which had a debt-to-GDP ratio of more 120 percent at the end of 2011.

The Italian cabinet held “lengthy” discussions on a possible request for European bailout funds to buy its bonds, Education Minister Francesco Profumo said in an Aug. 9 interview with Bloomberg News. Later that day he issued a press release saying “there wasn’t a long discussion.”

Monti, with seven months left to serve, is campaigning in Europe to prevent Italy’s bailout. In June, he joined forces with Spanish Prime Minister Mariano Rajoy, who’s also resisting a rescue, to ease requirements on countries that request aid. Abroad, he has been foiled by German resistance to collective action and investor speculation that the fate of Italy, the third-biggest economy in the 17-nation euro area, is tied to that of the other so-called peripheral countries.

Monti said today that it would be a tragedy if European leaders are unable to ease tension and bring stability to the common currency area.

“The euro is the pinnacle of the European construction,” he said. “It would be a tragedy if it became, because of the inability of us heads of governments, a factor of disruption which revives biases of the north against south or the other way around.”

To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net;

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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