Italy's borrowing costs rise after Berlusconi case

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File photo: Olivier Morin/AFP
14:15 CEST+02:00
Italy's borrowing costs rose on Tuesday in a bond auction which raised €4.5 billion ($5.9 billion). Traders said it indicated investor unease following former prime minister Silvio Berlusconi's conviction for sex with an underage prostitute and abuse of office.

The Italian Treasury raised 3.5 billion euros with zero coupon bonds (CTZs), set to mature in June 2015, at a rate of 2.403 percent, the highest rate since September 2012.

It also raised 510 million euros in inflation-indexed bonds to mature in 2018 at a rate of 2.91 percent, compared to 1.83 percent in April, and €490 million with the same type of bonds to expire in 2026, at a rate of 3.75 percent compared to 3.23 percent in February.

"Berlusconi's conviction adds another layer of political risk at a time when the Letta government is deeply divided over fiscal policy and Italy's economy remains mired in recession," commented Nicholas Spiro, managing director of Spiro Sovereign Strategy.

"Further pressure on Italy's bond market will inflame political tensions, with Berlusconi's People of Freedom (PLD) party heaping more pressure on Letta to take a tougher line with Germany and the European Central Bank," he added.

Berlusconi was sentenced to seven years in prison and banned for life from holding public office, and while the punishment is suspended until all appeals have been exhausted, analysts are concerned of the knock-on effect the ruling could have on Prime Minister Enrico Letta's coalition.

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"While it's premature to talk about a renewed flare-up of the bond market crisis in the eurozone, funding pressures in Spain and Italy are resurfacing at a time when the two recession-scarred economies can ill-afford higher borrowing costs," Spiro said.

Italy, with the eurozone's third-biggest economy is struggling to pull itself out of a two-year recession and did worse than thought in the first quarter of this year, shrinking by 0.6 percent.

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