9 Jul 2011

Debt costs rise for Portugal, Irish Republic and Italy

9:13 am on 9 July 2011

The cost of borrowing for debt-laden Portugal, the Irish Republic and Italy hit new highs on Friday.

Greek debts also sold off, reversing a recent rally on hopes of a new rescue.

Financial markets were reacting to a decision by the European Central Bank to raise interest ratesfrom 1.25% to 1.5% on Thursday, as well as political developments in Italy, where economy minister Giulio Tremonti has been drawn into a corruption scandal.

Italy has seen a sharp rise in its 10-year cost of borrowing over the last week, rising from 4.85% to 5.3%.

The BBC says this suggests markets now view the country as almost as risky as Spain, which must pay 5.65%.

Meanwhile Greece, the Republic of Ireland and particularly Portugal have seen the value of their debts in financial markets plummet further.

Their implied costs of borrowing in markets for three years now stand at 28%, 16.3% and 18.6% respectively.

The latest sell-off comes as it became increasingly clear that the European Central Bank was more concerned with fighting inflation, than in holding down borrowing costs for embattled governments.