Italy under fire as euro debt crisis deepens

FINANCIAL market pressure on Italy intensified last night, sucking Europe’s second biggest debtor nation deeper into the euro area danger zone and prompting emergency consultations in Rome, Madrid and other European capitals.

Italian and Spanish bond yields hit their highest levels in 14 years, with five-year Italian yields ominously touching the same level as Spain’s in a sign that Rome is overtaking Madrid as a focus of investors’ concern about debt sustainability.

Italian economy minister Giulio Tremonti called a meeting of the Financial Stability Committee — made up of representatives of the government, the Bank of Italy, market regulator Consob and insurance authority ISVAP — a day before prime minister Silvio Berlusconi is due to address parliament.

Jean-Claude Juncker, who chairs the Eurogroup of eurozone finance ministers, said he would meet Mr Tremonti in Luxembourg today, as signs grew that a second Greek bailout, agreed less than two weeks ago, had brought no respite for the currency bloc.

Spain’s economy ministry said it was in contact with fellow European governments — particularly Germany, Italy and France — about the situation in the markets.

Spanish prime minister Jose Luis Zapatero delayed a planned holiday as Spain’s borrowing costs approached the 7% mark that heralded bailouts of Greece, Portugal and Ireland.

Mr Zapatero is in “permanent” contact with finance minister Elena Salgado and has spoken with European Commission president Jose Manuel Barroso, according to his office.

The European Commission said both Rome and Madrid were taking necessary action to keep their economies on track and it was “confident in their abilities”. Italy is in the firing line partly because, at 120% of economic output, it has the highest debt-to-GDP ratio of any eurozone nation except Greece, which is nearing 160%.

Meanwhile, Irish, British and European shares approached year lows yesterday and gold hit new highs as investors sought a safe haven amid fears that the US will re-enter recession and Italy and Spain could be frozen out of sovereign debt markets.

European stocks tumbled to their lowest level in 11 months amid concern that a slowdown in the world’s largest economy may derail global growth.

Gold futures surged to a record $1,645.80 an ounce as escalating concern that the global economy is losing momentum spurred demand for the precious metal as an investment haven. Gold climbed to all-time highs in euro, pounds and Canadian dollars.