The euro weakened against the dollar after a disappointing Italian government bond auction this morning in which yields on five-year bonds hit their highest level since the introduction of the euro in 1999, which underlines funding problems in Italy. The hugely indebted Italian economy is the euro zone’s third largest economy.
The Italian government announced it will begin talks by the end of this week to discuss additional measures to stimulate economic growth and reduce the country’s massive debt.
“The first big question is growth…that is an issue on the agenda,” Italian Treasury under-secretary Alberto Giorgetti told reporters. He added that measures to significantly reduce public debt would also be discussed.
Meanwhile before the bond auction today, a report was released by Market News International doubting that China would support Italy by buying its government debt and risked more losses if the bond auction shows Rome faces difficulties raising money. Before this Market News International report, earlier today The Financial Times had reported that Italy had asked China to buy its bonds.
It is now more evident that it is becoming more difficult for Italy to raise money from the financial markets and this will consequently put more pressure on the euro in the coming days.
Weighing the euro further are mounting concerns of a Greek default and its possible contagion risks. Yesterday French bank shares fell sharply due to their exposure to Greek debt, possibly resulting in a ratings downgrade later in the week.