Italian finance minister Giulio Tremonti was yesterday in talks with Jean-Claude Juncker, chair of the Eurogroup of finance ministers from the 17 eurozone countries, as yields on Italian bonds reached levels near that of Greece.
In early trading, the interest to be paid on Italian 10-year bonds rose 0.19 per cent to 6.21 per cent.
The yields on Spanish bonds have also been rising, forcing prime minister Zapatero to cancel his holiday on Tuesday.
The yield on Spanish 10-year bonds was at 6.34 per cent yesterday, just below Tuesday’s record of 6.45 per cent.
This has shaken Spanish government plans to raise as much as 3.5 billion euros in a bond auction today.
A cost of borrowing above six per cent is considered unsustainable by many economists who fear the Greek ‘contagion’ is spreading like wildfire only two weeks after eurozone leaders agreed a second bailout for Greece that was ‘to solve the problem’.
Italy, which is the eurozone’s third-largest economy, has so far managed to avoid sovereign debt problems, despite having one of the highest debt-to-GDP ratios in the eurozone, at 120 per cent.
The Italian parliament approved a 43 billion euro austerity package last month, but there is some doubt about whether the Berlusconi government can implement the cuts.
Italian Treasury Secretary Vittorio Grilli is on a tour of Asia to try to drum up interest in buying Italian bonds.
However, France’s second-biggest bank, Société Générale, has reported a slump in second quarter profits as a result of its exposure to Greek sovereign debt.
The French bank’s net profit for the quarter fell to 747 million euros, down 31 per cent from a year ago.
The bank made a 395 million euro writedown on its 2.65 billion euros Greek debt holdings.
On Tuesday, BNP Paribas, which has the biggest exposure to Greek debt among France’s banks, said it was setting aside 534 million euros to cover its expected Greek losses.
Fears over the US economy as well as eurozone debt saw share prices across Europe continue to fall yesterday, following a 266.87 points, or 2.19 per cent, slump on Wall Street’s Dow Jones Industrial Index on Tuesday.
This came after new figures showed US consumer spending is down.
The price of gold hit a new record high, touching $1,668 an ounce in early trading before falling back slightly to $1667.8, up $43.5.
