Milan - AFP
Despite a key European pact to tackle the eurozone debt crisis, the state of Italy\'s economy is still worrying the markets, forcing Rome to pay high interest rates to raise fresh funding. At a bond auction, the yield -- the rate of return earned by investors -- on bonds due in 2022 topped the red-line 6.0 percent, a level many analysts believe is unsustainable in the longer run for the public finances. The bonds were sold at 6.06 percent, up from 5.86 percent at the last similar operation on September 29. Despite the euphoria seen on Thursday\'s EU plan, aimed at preventing the debt crisis from bringing down Italy and the wider eurozone, \"Italian rates continue to flirt with the 6.0 percent mark,\" said Jean-Francois Robin, Natixis bond specialist. \"At this level, the rates are not sustainable for long,\" Giuseppe Maraffino from Barclays Capital warned, stressing how important it is that they come down again in light of Italy\'s poor growth rate and vast mountain of debt. The country\'s colossal 1.9 trillion euro debt is equal to 120 percent of its gross domestic product, compared with the EU\'s limit of 60 percent. Worse still at Friday\'s sale, rates went up across the board, showing the market judges Italy to still be at significant risk and wants more money to lend funds to Rome. The yield on bonds due in 2017 shot up from 2.33 percent to 5.59 percent; 2014 bonds rose from 4.68 percent to 4.93 percent and 2019 bonds soared from 4.03 to 5.81 percent. In all, the Treasury raised 7.94 billion euros ($11.24 billion) but failed to reach its target of 8.5 billion euros. The impact on the stock market, which jumped more than 5.0 percent Thursday on news of the eurozone deal, was severe, with the Milan FTSE Mib down nearly 2.0 percent, dampening the tone in other markets. According to analysts, investors consider Italian debt to be high risk because they have little confidence in Prime Minister Silvio Berlusconi, despite the assurances he gave his European allies on economic reforms. \"Italy is not very highly regarded, Berlusconi is at the heart of the problem. A lot of attention is being paid to his political ability to pass reforms because the markets want the promises to be kept,\" Robin said. Analysts also said that markets were waiting to see the details of the new European plan, in order to judge whether the measures would be sufficient to avoid debt contagion to at-risk countries including Italy and Spain. Berlusconi has promised Europe he will present the details of his own reforms -- including selling off state assets and making it easier to sack people -- by November 15, and implement them over the next eight months. Italy also confirmed its aim to balance its budget in 2013 on the back of two draconian austerity packages adopted by parliament earlier this year. However, the coalition government is plagued by tensions which have sparked talk that the beleaguered premier -- whose popularity is at an all time low -- will be forced to call early elections instead of winding up his mandate as planned in 2013. He also faces an opposition which calls ceaselessly for his resignation and refuses calls for unity in the face of the crisis -- as well as furious business leaders demanding action and unions threatening to strike. Italy\'s economic health does not rest in Berlusconi\'s hands alone -- but also in the detail of the EU\'s plan to shore up the eurozone, including boosting the bloc\'s rescue fund, the European Financial Stability Facility (EFSF). \"We cannot judge its effectiveness just yet, we do not know how much power it will have,\" Robin said of hopes that a larger fund would be able to support an ailing Rome. Maraffino said \"market sentiment may be better than before but it is still fragile. Investors now want to see details on just how exactly the plan will be implemented.\"