European Council (EC) President Herman Van Rompuy summoned officials dealing with the euro zone’s debt crisis to an emergency meeting on Monday over fears that contagion over debt will next affect Italy, the region’s third largest economy.
Reuters reported that the region’s big guns were primed for the meeting: Jean-Claude Juncker, chairman of the euro zone’s finance ministers; Jean-Claude Trichet, president of the European Central Bank (ECB); Jose Manuel Barroso, president of the European Commission (EC); and economic and monetary affairs commissioner Olli Rehn were all scheduled to attend. The meeting was set to occur before an already scheduled meeting of the 17 euro zone finance ministers for later in the day. That meeting will address Greece’s woes.
While Van Rompuy spokesman Dirk De Backer said of the early meeting in the report, “It’s a coordination, not a crisis meeting,” adding that Italy was not on the agenda and refusing to say what was planned for discussion, indications were otherwise. Two unidentified official sources were cited in the report as saying that Italy was the subject of the meeting, which had been organized after a selloff Friday of Italian stocks and a widening spread on Italian sovereign debt.
After Greece, Italy has the highest sovereign debt ratio in the region, and the spread on its 10-year bonds against the German Bund Friday hit euro lifetime highs. That brought the cost of yield to 5.28%, nearing the level at which bankers fear Italy will fold. Unicredit Spa, Italy’s largest bank, saw its shares fall 7.9% Friday, and the main Italian stock index dropped 3.5%. Concerns over stress test results to be announced July 15 drove the bank’s stock lower. Monday saw no improvement, with all bank stocks falling further and the cost of yield on bonds rising to 5.5%-5.7%.
Political worries as well as economic ones are working on Italy’s economy, which is both slow and laced with high debt levels. Investors fear that Prime Minister Silvio Berlusconi could be trying to discredit or force out Finance Minister Giulio Tremonti; Tremonti has been pushing spending cuts as a means of controlling the budget deficit.
Government officials and politicians alike worked Sunday to contain damages, putting on a united front and voicing support of Tremonti, with Paolo Bonaiuti, a government undersecretary and senior aide to Berlusconi saying, “From tomorrow, we have the job of showing we are united and blocking the effort of speculators. In the coming months we have 120-130 billion euros [$169.034-183.097 billion] of bond issues to deal with, so we need cohesion and united intent; it’ll take effort to show that the markets are overdoing it.” However, Berlusconi himself said nothing, even backing out of two speaking engagements.
A senior ECB official said in the report, “We can’t go on for many more days like Friday. We’re very worried about Italy.”