Sept. 12 (Bloomberg) — Italian bond yields surged at an auction today and Greek Prime Minister George Papandreou failed to reassure investors that his country can avert default as the euro region’s debt crisis worsened.
Italy sold 12-month bills today to yield 4.153 percent, up from 2.959 percent a month ago as demand fell. The yield on Greece’s two-year note surpassed 60 percent for the first time after the government said it would raise property taxes to meet the 2011 deficit goal in its European Union-led rescue.
Papandreou is struggling to convince investors that Europe’s most-indebted country can avoid a default that threatens to roil the euro region. That’s undermining European leaders’ efforts to stop contagion from spreading to Spain and Italy as splits emerge in the German government about how best to handle Greece.
“We have got to the stage when markets have lost an enormous amount of faith with the euro project as a whole,” said Marc Ostwald, strategist at Monument Securities Ltd. in London.
Papandreou’s pledges to meet the deficit target was undermined by data released today showing the central government’s budget gap widened 22 percent in the first eight months as austerity measures deepened a three-year recession. The government now expects the economy to shrink more than 5 percent this year, more than the 3.8 percent forecast by the European Commission.
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