MercoPress. South Atlantic News Agency

Italy hugely exposed to the Euro-debt turmoil and to Spanish contagion

PM Monti frustrated with borrowing costs for Italy

Italy is hugely exposed to the risk of contagion from the debt turmoil in the euro zone, said Prime Minister Mario Monti, suggesting the European Central Bank take action to help cool borrowing costs.

Monti, a former European commissioner who took over the premiership in November to enact tough austerity measures, expressed frustration at borrowing costs that have risen for Italy since mid-March despite a 2012 budget deficit forecast at well below the EU average.

“It is obviously a difficult place to be in, when you have a country displaying massive and concentrated efforts of consolidation and structural reforms, which are obviously politically and socially costly, and sees its position threatened by huge possibilities of contagion,” Monti said.

“Contagion is there because of the overall weakness of the system rather than for the specific weakness of my country,” Monti told a conference in Brussels via video link from Italy.

On Wednesday, Italian benchmark yields broke above the 6% danger level as investors required higher returns to buy five- and ten-year debt at an auction tainted by escalating concerns about the banking system in Spain.

Equivalent Spanish yields have risen close to the 7% level at which Ireland and Portugal were forced to seek international bailouts.