Italian Prime Minister Silvio Berlusconi has said the country needs an 'immediate action plan' to relaunch growth. He was speaking to parliament in an effort to ease concerns over a possible debt crisis.
He said markets wanted to see that Italy was prepared to take the steps necessary to achieve growth it needs to keep on top of its massive debt. Berlusconi pledged to work with unions and employers for a reform of labour laws and other measures to boost growth.
He said Italy had solid economic fundamentals,, and that its banks had liquidity and were solvent.
This evening, Spanish and Italian 10-year yields stood respectively at 6.29% and 6.11%. The gap between them has narrowed as Italy has overtaken Spain as the main focus of market concern about debt sustainability. Yields of 6% or more are widely considered to be unsustainable for slow-growth euro zone countries.
Earlier the EU voiced support for Italy and Spain, who are under attack on financial markets, but acknowledged that investors now doubt whether the euro zone can overcome its debt crisis.
European Commission President Jose Manuel Barroso said a surge in Italian and Spanish borrowing costs was a cause for deep concern and did not reflect the true state of the third and fourth largest economies in the currency area.
'In fact, the tensions in bond markets reflect a growing concern among investors about the systemic capacity of the euro area to respond to the evolving crisis,' Barroso said in a statement.
He urged member states to speed up parliamentary approval of crisis-fighting measures agreed at a July 21 summit meant to stop contagion from Greece, Ireland and Portugal, which have received EU/IMF bailouts, to larger European economies.
Also today, Italian Economy Minister Giulio Tremonti met the chairman of euro zone finance ministers, Jean-Claude Juncker, for emergency talks. They made no policy announcements after two hours of talks in Luxembourg.
'We had a long discussion of the problems the euro area is facing,' Juncker told reporters. Tremonti called it a 'long and fruitful discussion' but said nothing on the substance of the talks.
In Brussels, the European Commission said after EU monetary affairs chief Olli Rehn spoke to Tremonti that there had been no discussion of a bail-out for Italy, which would overwhelm the euro zone's existing rescue funds.
The Commission said Mr Rehn believes that Italy is doing what it should to boost economic growth and consolidate public finances.
Options to deal with latest crisis limited
Less than two weeks after leaders of the 17-nation euro zone agreed on a second bail-out for Greece and adopted measures meant to stem contagion to larger sovereigns, the debt crisis is back with full force.
With many policymakers on holiday, there seems little prospect of immediate European policy action, although Spain said the main euro zone governments had held telephone contacts on the situation in the markets.
The euro zone's rescue fund cannot use new powers granted at last month's summit to buy bonds in the secondary market or give states precautionary credit lines until they are approved by national parliaments in late September at the earliest.
The European Central Bank could reactivate its bond-buying programme, which temporarily steadied markets last year but has been dormant for more than four months.
Italy and Spain could offer new austerity measures to try to placate the markets, but Italy has just adopted a €48 billion savings package and Spain's government has just called an early general election for November 20.
Shares in banks exposed to euro zone debt, particularly in Italy, have taken a hammering and are having growing difficulty in securing commercial funding.
Shares in Italy's Intesa Sanpaolo were briefly suspended after sharp falls but later recovered somewhat. Shares in France's Société Générale also plunged after it warned investors that it may miss its 2012 profit target after taking a €395m hit in the second quarter due to its exposure to Greek debt.
Portugal borrowing costs marginally lower
The price of borrowing for Portugal fell slightly at a short-term bond auction this morning. Portugal raised €750m in three-month debt at a yield of 4.967%, slightly down from 4.982% for a similar issue in late July.
Demand exceeded the offer by 2.6 times, Portugal's public debt management agency said. The agency had intended to raise €500m to €750m.
Portugal received a €78 billion bail-out from the European Union and International Monetary Fund earlier this year and agreed to stringent budget measures to scale back state spending.
