Italian Prime Minister Mario Monti on Thursday urged a united response against the debt crisis that has pushed the eurozone to the brink this year after Italy scraped through a key bond auction test. The Treasury raised 7.0 billion euros ($9.0 billion) - below the maximum sought of 8.5 billion euros but with long-term rates holding just below the danger threshold of 7.0 percent which has set off alarm bells around the world.
Short-term rates had fallen sharply in another auction on Wednesday. This week's auctions "went rather well and this is encouraging but we certainly do not think that the phase of financial turbulence is finished," Monti told reporters at an end-of-year news conference.
Monti also stressed that recent problems for Italy on the markets were linked to wider difficulties in Europe, which required a "united, joint and convincing response" that could also boost growth. "We believe budget discipline is essential and any mechanism that can make this discipline secure and credible is fine as long as there is a European economic policy... that also promotes growth," he said.
He said his government would start implementing liberal reforms to make Italy's economy more competitive starting in January and would look to the economic policies of Nordic countries for inspiration. European leaders have agreed to strengthen rules and sanctions for keeping public accounts in order but there are lingering doubts about the deal and about the impact of an expected slowdown in eurozone growth in 2012. Italy's ability to borrow on the debt markets was being closely watched as a bellwether of current confidence in the eurozone.
Analysts were cautious about the implications of the bond sale. "There's no reason to be over the moon. We're basically at 7.0 percent," said Rene Defossez, a bond strategist at French investment bank Natixis. Italy will have to raise some 450 billion euros on the debt markets in 2012 - with around 53 billion euros to be raised next month alone - and analysts say it will struggle if the high rates seen recently persist.
The eurozone's third largest economy, Italy sparked fears this year that its toxic mix of low growth, high debt and spiralling borrowing costs could force it to seek a bailout like fellow eurozone members Greece, Ireland and Portugal. Silvio Berlusconi's replacement by Monti as prime minister last month has helped ease fears of an imminent debt implosion as the former European Union commissioner quickly put in place a tough plan of austerity measures.
But there is still concern over the plan's impact on an economy that is moving into recession after shrinking by 0.2 percent in the third quarter. The government is forecasting a contraction of 0.4 percent next year. There was more bad news on the economic front meanwhile with a closely watched business confidence index falling to 92.5 points in December.