Greek Options on Repaying ECB Bonds Said to Include Bills, Delay

Options to tide Greece past the looming redemption of its bonds held by the European Central Bank include delaying the payment and having the cash-strapped country sell bills, two European Union officials said.

Two Greek bonds on the ECB’s books totaling 3.1 billion euros ($3.8 billion) mature on Aug. 20, Bloomberg data show. The central bank insists on being repaid in full, unlike the investors who were forced to take losses in this year’s Greek debt restructuring.

Euro-area finance ministers will on July 20 consider ways to save Greece from a market-quaking non-payment without easing the pressure on Prime Minister Antonis Samaras’s new government to keep overhauling the economy, said the officials, who asked not to be named because the talks are private.

European governments are determined to avoid a reckoning with Greece, which triggered the debt crisis almost three years ago, while separate negotiations take place over aid for Spain’s banks. A downgrade today by Moody’s Investors Service of Italy’s credit rating added to the fiscal concerns plaguing the 17- nation euro area.

Greece is counting on an “intermediate solution” to keep it solvent through August, Finance Minister Yannis Stournaras said in Brussels on July 10 after attending his first meeting of European finance chiefs.
Greek Cash

European governments first need to have a closer look at Greece’s accounts, remembering that prior cash-flow squeezes ended with it coming up with payments in time, one official said. One option would be an unspecified form of bridge financing, the official said.

Greece could also sell three-month Treasury bills, the other official said. The country hasn’t been shut out of short- term debt markets, announcing today that the next regular sale of 1.25 billion euros in 13-week bills will take place on July 17.

A final option is for the ECB to consent to giving Greece an extra month to pay up, the officials said. An ECB spokeswoman declined to comment.

The ECB is the sole holder of the first, 551 million-euro bond due in August. The central bank owns 97.5 percent of the second, 2.6 billion-euro bond, with the rest held by the European Investment Bank and the European Union.

One cause of next month’s wrangle over the bond redemption was a decision by European creditors and the International Monetary Fund to withhold a scheduled 4.2 billion-euro disbursement due in June until elections yielded a stable Greek government committed to the reform program.

Greece’s redemption won’t dominate the July 20 meeting of finance ministers. The main purpose is to sign off on aid of as much as 100 billion euros for Spain’s banks. The consultations are likely to be by teleconference, though an in-person meeting in Brussels isn’t ruled out, officials said.

Italy passes market test after downgrade, concern persists

Italian banks came to the rescue on Friday after the country suffered a ratings downgrade, but while Rome cut its three-year borrowing costs at auction, a rise in 10-year bond yields highlighted concern it may fall victim to Europe's debt crisis.

Moody's cut Italy's sovereign debt rating to Baa2 on Friday, citing doubts over Italy's long-term resolve to push through much-needed reforms and saying persistent worries about Spain and Greece were increasing its liquidity risks.

Solid domestic demand helped the Italian Treasury sell the top planned amount of 5.25 billion euros in bonds, paying less than a month ago on three-year paper.

"This was a challenging enough auction without the downgrade which makes the result look all the more impressive," said Spiro Sovereign Strategy Managing Director Nicholas Spiro.

"Once again, the Treasury was able to get its debt out the door, which right now is the overriding priority."

A new 2015 bond was sold at an average 4.65 percent rate, compared with the 5.30 percent Italy paid in June just before a cliffhanger Greek vote that had stoked fears of a euro exit and soon after an unconvincing first deal to help Spanish banks.

Italian banks' commitment to support Rome's refinancing of its 2 trillion euro debt and a broad domestic investor base have provided a safety net for Italy throughout the crisis.

Foreign investors' reluctance to hold Italian debt, however, keeps the yields under pressure. Benchmark 10-year-bond yields were up nine basis points around 6 percent while Italy's debt insurance costs also rose.

"Does it mean this puts a cap on the rise in Italian yield? Well, not really," said strategist Marc Ostwald at Monument Securities in London.

The U.S. rating agency lauded Prime Minister Mario Monti's commitment to fiscal reforms and structural consolidation. But warned it could again cut the country's marks if the next Italian government failed to continue along this path.

"The negative outlook reflects our view that risks to implementing these reforms remain substantial. Adding to them is the deteriorating macroeconomic environment, which increases austerity and reform fatigue among the population," it said.

"The political climate, particularly as the spring 2013 elections draw near, is also a source of implementation risk."

Analysts say political uncertainty ahead of elections is the main risk for Italy, where frustration with austerity measures and the country's weak and fragmented party system is stoking anti-European sentiment and has helped the meteoric rise of the populist Five Star Movement, led by comedian Beppe Grillo.

Respected technocrat Monti, who was called in last November to pull back Italy from the edge of the cliff and avoid a Greek-style debt crisis, has said he will stand down next year.

Three-times Prime Minister Silvio Berlusconi, who has kept a low profile since being forced out to leave room for Monti, announced this week he will return to frontline politics as the centre-right candidate, further muddling the political outlook.

He has taken an increasingly anti-European tone in recent public comments, criticizing Monti's austerity policies and openly questioning the value of remaining in the euro.

"Berlusconi seems to have picked up on the increased sense of frustration within the Italian society that the sacrifices being made by the country are not being sufficiently recognized by the markets and that part of the blame lies in the slow EU policy response," said BNP Paribas analyst Luigi Speranza.

Opinion polls suggest that a center-left bloc would win the elections and it is not yet clear whether Berlusconi's return to front line politics may alter the picture.

UNJUSTIFIED

The stark warning from Moody's, which comes as investors are already fretting about Spain's ability to mend its banking sector, knocked the euro down about a quarter of a cent overnight and initially sunk Italian bond futures.

The downgrade prompted angry reactions in Italian political and economic circles, with Italian Industry Minister Corrado Passera calling it "altogether unjustified and misleading."

The European Commission, which has so far mostly refrained from commenting on rating actions on individual euro zone countries, queried the timing of Moody's downgrade while backing the steps Italy has taken address its structural weaknesses.

"I do think one can legitimately and seriously question the timing of it, whether the timing was appropriate," Commission spokesman Simon O'Connor told a regular briefing.

But one senior Italian banker who declined to be named said the rating action could also provide a positive stimulus for a rapid response to the euro zone crisis: "It will create further pressure at EU level for a solution."

Italian magistrates are currently investigating for possible market manipulation past downgrade actions by the three main international rating agencies - Moody's, Standard & Poor's and Fitch - which triggered massive sell-offs of Italian assets.

The rating agencies deny vigorously any wrongdoing.

On Friday, Italian inflation-linked bonds sold off sharply as the downgrade would cause them to drop out of an important bond index. Linkers represent only a small portion of Italy's debt.

The yield difference between 10-year Italian government bonds and German Bunds remained at around 475 basis points, a high level that is frustrating the government in Rome and that Federico Ghizzoni, who heads of Italy's biggest bank by assets UniCredit, has called 'unsustainable'.

Monti this week did not rule out tapping euro zone bailout funds through a new bond-buying system to help ease Italy's borrowing costs. But Moody's said an Italian request for external assistance could trigger a further downgrade.

The country's economy is projected to contract by as much as 2 percent, dimming the prospect of implementing reforms.

Analysts estimate foreigners hold about one third of Italy's public debt, down from 40 percent a year ago. Foreign deposits at Italian banks have fallen 20 percent year on year.

"This is just Moody's opinion. I think our country, and our manufacturing system, is much stronger than the Moody's evaluation suggests," domestic business association head Giorgio Squinzi said.

Stocks Surge as JPMorgan Jumps; Commodities, Euro Advance

Global stocks rallied, ending the longest slump since November, as JPMorgan Chase & Co. (JPM) surged after reporting earnings and speculation grew that China and Europe will boost stimulus efforts. The euro rebounded from a two-year low, while cotton and nickel led commodities higher.

The MSCI All-Country World Index added 1.5 percent at 4 p.m. in New York, snapping a seven-day retreat, and the Standard & Poor’s 500 Index gained 1.7 percent. The euro rose 0.3 percent to $1.2240 as Medley Global Advisors predicted the European Central Bank will ease monetary policy further. Cotton and nickel advanced more than 2.4 percent to lead a gains in 22 of 24 commodities tracked by the S&P GSCI Index. Ten-year Treasury yields increased two basis points to 1.49 percent.

JPMorgan rose 6 percent to lead the Dow Jones Industrial Average (INDU) up 204 points, while the KBW Bank Index jumped the most since March, as Chief Executive Officer Jamie Dimon said the bank will still likely post record earnings for 2012 even after a $4.4 billion trading loss from its chief investment office in the second quarter. Warren Buffett said the firm’s reputation is intact as far as he’s concerned.

“The degree to which our banking system has come back, particularly compared to the European banks, is dramatic,” Buffett, the billionaire chairman of Berkshire Hathaway Inc., said today on Bloomberg Television’s “In the Loop With Betty Liu” in Sun Valley, Idaho. “Our banking system is in terrific shape and that can’t be said for banks around the world and it couldn’t be said for our banks four years ago.”
China Economy

Stocks and commodities also increased after China’s economy grew a less-than-estimated 7.6 percent last quarter, putting pressure on policy makers to increase monetary easing and investment.

“China’s growth is slowing, which will urge their policy makers to respond with a fiscal thrust,” said Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $115 billion of assets.

The S&P 500 rebounded following six days of losses, the longest slump in almost two months. U.S. equities maintained gains even as confidence among consumers unexpectedly slid in July to the lowest level this year as the labor market showed few signs of improvement. The Thomson Reuters/University of Michigan index of consumer sentiment dropped to 72 this month from 73.2 in June, trailing the median economist projection for a rise to 73.5.
Banks Rally

Financial shares in the S&P 500 led gains among the 10 main industries in the index, rallying 2.8 percent as all 81 companies increased. Wells Fargo & Co., the most valuable U.S. bank and largest home lender, climbed 3.2 percent after earnings increased 17 percent on strength in mortgage banking and a drop in expenses.

Bank of America Corp., Microsoft Corp. and Caterpillar Inc. climbed more than 2.6 percent to helped lead gains in the Dow, with all 30 stocks in the gauge advancing except for Hewlett- Packard Co. Phillips 66 rallied 5.9 percent after Buffett said Berkshire Hathaway has invested in the refiner.

Procter & Gamble Co., the world’s largest consumer-products company, rose 2.2 percent. Board members are dissatisfied with Chief Executive Officer Robert McDonald’s performance and are discussing a possible leadership change, according to people familiar with the situation. P&G jumped 3.8 percent yesterday as the Federal Trade Commission cleared William Ackman’s hedge-fund company to buy a stake.
JPMorgan Results

JPMorgan’s net income fell to $4.96 billion, or $1.21 a share, from $5.43 billion, or $1.27, in the same period a year earlier. The largest U.S. bank by assets also restated first- quarter earnings, reducing net income by $459 million, and used securities gains and an $800 million accounting benefit to help boost profit.

Dimon said he hopes the company can buy back stock in the fourth quarter of 2012 after it completes a review of trading losses in the chief investment office.

By capping the size of the potential loss and revamping management of the businesses responsible, Dimon may help restore investor confidence after the bank’s market value dropped $39.7 billion since April 5, when Bloomberg News first reported that the company had amassed an illiquid book of credit derivatives at the London chief investment office.

“They laid it all out,” said Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co. in Elmira, New York. “The overall earnings report is showing the company is on the upswing. Earnings will continue to do fairly well as loans come back.”
European Markets

Eight shares gained for each that declined in the Stoxx Europe 600 Index. (SXXP) Storebrand ASA rallied 8.2 percent as Norway’s second-largest publicly traded insurer said it plans to reduce costs and meet stricter European capital requirements without selling new shares. Basic-resource and telephone companies rallied more than 2.7 percent to lead gains in all 19 industry groups in the Stoxx 600.

European stock strategists are backing away from their most-pessimistic forecasts as policy makers agree on measures to tackle the region’s debt crisis. While sticking to predictions for losses of as much as 16 percent, Morgan Stanley’s Ronan Carr raised his recommendation on European equities to neutral on July 2 and Alain Bokobza of Societe Generale SA said he has started to reduce the underweight call he’s had for at least two years. Exane BNP Paribas said investors can find bargains among companies most reliant on economic growth.

The euro recovered after earlier slumping as much as 0.3 percent to $1.2163, the lowest since June 2010. The shared currency strengthened against nine of 16 major peers, rising at least 0.3 percent versus the Taiwanese dollar, Brazilian real and Swedish krona.
ECB Speculation

The ECB is prepared to further ease monetary policy, including lowering its deposit rate below zero percent and implementing more non-standard liquidity measures as early as September, if warranted, Medley Advisors wrote in a report.

The MSCI Emerging Markets Index added 1.4 percent, rebounding from a two-week low. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong increased 0.8 percent, the biggest one-day gain since July 3. South Korea’s Kospi Index, Russia’s Micex and the Bovespa in Brazil each rallied at least 1.5 percent.

Italy’s 10-year bond yield increased 15 basis points to 6.06 percent. The yield spread above benchmark German bunds was 14 basis points higher at 4.80 percentage points. Moody’s Investors Service reduced Italy’s bond rating by two levels and reiterated its negative outlook.

Crude oil rallied 1.2 percent to $87.10 a barrel in New York, climbing for a third straight day. Copper surged 2.6 percent. Corn climbed 1.1 percent and soybeans rose 1.5 percent as drought in the U.S. worsens crop conditions.

Visa, MasterCard Settle Merchants’ Swipe-Fee Lawsuit

Visa Inc. (V), MasterCard Inc. and some of the biggest U.S. banks agreed to a settlement of at least $6.05 billion with retailers in a price-fixing case over credit- card swipe fees, according to a court filing.

The total value of the settlement is $7.25 billion on behalf of a class of about 7 million merchants in the U.S. that accept Visa and MasterCard credit cards and debit cards, a law firm for the merchants, Robins Kaplan Miller & Ciresi LLP, said in a statement.

Visa, the world’s biggest payments network, said its share of the settlement filed today in federal court in Brooklyn, New York, was about $4.4 billion. Visa said the proposed settlement payments, including costs incurred by MasterCard Inc. (MA) and card- issuing banks, would be about $6.6 billion. That amount would include about $525 million for individual claims.

“We believe settling this case is in the best interests of all parties,” Visa Chief Executive Officer Joseph W. Saunders said today in a statement.

The agreement follows a seven-year legal battle with U.S. retailers that accused the two largest payment networks of conspiring with banks to fix swipe fees, or interchange.
Intense, Difficult

“It’s been an extraordinarily intense and difficult settlement to reach,” K. Craig Wildfang, a lead lawyer for the plaintiffs, said in a phone interview. “Everything about this case is big and complicated.”

“But here we are and it’s a truly historic accomplishment,” he said.

The dispute began in 2005, a year before MasterCard’s initial public offering and three years ahead of San Francisco- based Visa’s. Merchants alleged the companies violated antitrust law by fixing the swipe fees, which average about 2 percent of the purchase price. Proceeds generate more than $40 billion a year for U.S. banks.

The case had been set for trial in September before U.S. District Judge John Gleeson in Brooklyn.

The settlement includes a $6.05 billion cash payment, according to today’s filing. That amount would be reduced if some plaintiffs don’t agree to participate.

The settlement also provides for a temporary rebate of about one-tenth of a percentage point on the fees charged retailers, according to the filing. The agreement includes modifications in Visa and MasterCard rules to allow merchants to tack surcharges on to bills based on the fees.

Those rule changes wouldn’t take effect in states where laws specifically prohibit credit card surcharges, said Douglas Kantor, a lawyer for the National Association of Convenience Stores. The association said today it wouldn’t participate in the settlement, saying it offers too much to Visa and MasterCard and is unfair to merchants.
Market Unreformed

“The settlement doesn’t reform the market,” Kantor said. “It will still have Visa and MasterCard setting the fees so the banks don’t have to compete.”

MasterCard, the world’s second-biggest payments network, said the settlement would cost it $790 million.

“Our decision to settle is based on our belief that MasterCard and our stakeholders are best served by an amicable resolution,” Noah Hanft, general counsel for the Purchase, New York-based company, said in a statement. “We know that merchants care about their customers and anticipate that they will not impose checkout fees, particularly because the value merchants derive from card acceptance far exceeds their costs.”
Visa Rises

Visa rose as much as 2.5 percent to $127.24 in extended trading in New York. MasterCard advanced as much as 2.5 percent.

The agreement follows a 2010 settlement with the Justice Department in which the two payment networks agreed to allow merchants to steer customers to different credit cards or other forms of payments by offering incentives. New York-based American Express Co. (AXP) is still fighting the government lawsuit.

American Express, the third-biggest U.S. network, and No. 4 Discover Financial Services (DFS), based in Riverwoods, Illinois, aren’t defendants in the merchants’ lawsuit.

Visa and the banks that issued its cards would be responsible for two-thirds of the settlement in the merchants’ suit, while MasterCard and its card-issuing banks will pay the rest, the companies said in February 2011 regulatory filings.
Visa Escrow

Visa’s share would be paid from a litigation escrow account established under a plan designed to have the costs incurred by U.S. banks that owned the company before its 2008 initial public offering, according to its statement today. When Visa deposits money into the escrow account, it has the effect of a stock repurchase. Visa had $4.28 billion in uncommitted funds set aside to cover litigation at the end of March.

Defendants in the case include Bank of America Corp., Citigroup Inc. (C), Wells Fargo & Co. (WFC), Capital One Financial Corp. (COF), Barclays Plc (BARC) and HSBC Holdings Plc. (HSBA)

Before their IPOs, Visa and MasterCard were controlled by consortiums of the largest banks. After regulatory actions around the globe targeted the fees, the banks took the payment networks public in hopes of evading antitrust liability, the merchants alleged in court filings.

Few publicly traded retailers would be willing to apply surcharges because making one form of payment more expensive would impede the spending of consumers already struggling through a weak U.S. economic recovery, said Paul Swinand, an analyst for Morningstar Inc. in Chicago.
‘Psychological Barrier’

“The risk of ticking off the customer would keep most big national companies from doing it,” Swinand said.

Consumers who use credit also spend more, which may curtail purchases, especially high-priced items such as electronics and jewelry.

“They don’t want to put up a psychological barrier on spending,” said Russell Walker, a professor at Northwestern University’s Kellogg School of Management. Adding surcharges “would be an immediate bump to revenue, however that discounts any reaction that customers would have,” he said.

The possibility of a new revenue stream may be too much for some merchants to pass up. In industries with less competition, such as airlines, adding surcharges may be easier, Walker said.

Last month in Australia, where retailers can apply surcharges, regulators set limits after concerns that merchants were applying fees above transaction costs.
Wal-Mart, Target

“If you have an opportunity to levy a fee, do you just cover the cost, or do you create a new revenue source?” Walker said.

What probably will emerge in the U.S. is that the ability to add surcharges will give major chains such as Wal-Mart Stores Inc. (WMT) and Target Corp. more leverage in negotiating swipe fees, according Ed Mierzwinski of the U.S. Public Interest Research Group in Washington.

Large chains already use the clout of their transaction volumes to negotiate lower swipe fees than smaller competitors and having surcharges will boost that advantage, Walker said.

“If you are a larger retailer, you can expect more power,” Walker said. “For the smaller retailer, it will be harder to be treated in the same manner.”

Even if retailers don’t impose surcharges, the settlement also allows the use of incentives and discounts to steer consumers toward payment forms with lower fees. Some gas stations are already doing this by offering higher prices per gallon for credit than debit or cash.
Lowering Prices

What large retailers would do with a decline in credit card swipe fees remains to be seen. Retail industry advocates say the savings from a reduction in interchange costs will bring down prices for consumers. Home Depot Inc. lowered prices on more than 3,000 products following the cut in debit card swipe fees mandated by the Dodd-Frank Act, according to American Banker.

The Electronic Payments Coalition, which represents Visa, MasterCard and banks, counters that retailers aren’t passing on savings. The trade group says the reduction in debit-card swipe fees was an $8 billion handout to merchants.

“The question is are you shifting dollars from banks to consumers or from banks to merchants?” Swinand said.

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York (Brooklyn).

IMF says finds policy delays in Greek program

The International Monetary Fund said on Thursday it had found policy delays in a number of areas of the Greek bailout program and was open to ideas on how to reach the key objectives of the economic package.

The IMF made the comments after its mission to Greece completed initial talks with the country's new government. The mission will return to Athens on July 24 for more formal negotiations of the "troika" of international lenders, IMF spokesman Gerry Rice said.

"It is clear the economy is going through another difficult period," Rice told a regular briefing for reporters. "Clearly the important thing is to put the program fully back on track."

The IMF has said the objectives of the austerity program - to reduce the budget deficit, improve growth and make the economy more competitive through cuts and reforms - need to remain the same but it is willing to talks about ways to achieve those goals.

"The program objectives remain the basis for the discussions. It is premature to get into which of the different measures might be open to discussion," Rice said.

"So far, some targets were met, a number were missed, and in some cases we don't have data to assess and will have to wait a little longer to develop the full picture," he added.

The conservative-led coalition government won elections on a pledge to renegotiate parts of the bailout, including softening the pain of austerity by stretching measures over four years instead of two as planned.

Prime Minister Antonis Samaras has said he does not dispute the goal of the plan but how to reach them without deepening Greece's recession.

Government officials said after meeting the troika of international lenders that Greece will not ask for a renegotiation of the terms before it proves it can be a credible partner by catching up on delays and pushing reforms.

Italy faces bond sale test after Moody's downgrade

Italy's auction of up to 5.25 billion euros in bonds on Friday looks altogether more testing after Moody's cut its rating on the euro zone's third-largest economy to just two notches above junk status.

The agency downgraded Italy's sovereign rating by two notches to 'Baa2', citing rising risks of higher funding costs and a loss of market access. It warned it may cut it further.

The unexpected move weighed negatively on Italian bonds in early trade but a new three-year bond on sale on Friday still traded at levels which pointed to a fall in the cost of borrowing from a month ago.

"The (Italian government bond) futures have opened sharply lower, we have a tough day ahead of us," an Italian bond trader said. "The negative outlook is particularly worrying."

Ten-year Italian government bond yields rose 13 basis points to 6.04 percent, while five-year yields were up 15 bps to 5.55 percent in response to the Moody's action.

The Treasury is offering a new July 2015 bond carrying a 4.5 percent coupon and new tranches of three bonds due in 2019, 2022 and 2023 that are no longer issued on a regular basis.

It last sold three-year paper a month ago, right before pivotal elections in Greece and soon after a sketchy accord to support Spanish banks that failed to reassure investors.

It then paid an average 5.3 percent yield, the highest since December, on the three-year maturity. On Friday morning the three-year bond yielded around 4.9 percent, around 10 basis points higher on the day.

Analysts have attributed the fall in yields to progress achieved on Spain's bank bailout but warn volatility on bond markets is very high and sentiment extremely fragile.

Prime Minister Mario Monti this week did not rule out Italy may in the future need to seek support for its bonds from the euro zone's rescue funds.

Moody's said that, given the size of the Italian economy, such mechanism could only give limited support.

"The backdrop remains fundamentally challenging," analysts at Citi said in a note.

Domestic demand should still help the Treasury clear the sale, thanks also to the relatively small amounts offered both for the new issue and the other three bonds. These were probably specifically requested by primary dealers.

A decision to cancel a mid-August bond sale - in line with a practice adopted in recent years - should also be supportive.

On Thursday, Italy saw its one-year debt costs drop by more than one percentage point from a month earlier at a bill sale.

POLITICAL RISK

Moody's said Monti had made substantial progress on structural reforms which, if sustained, could improve the country's competitiveness and growth potential. But with the prime minister saying he will not stand in next year's election, there is significant uncertainty for the markets to price in.

Former premier Silvio Berlusconi, who resigned last year in the middle of financial turmoil that risked tipping Italy into a Greek-style debt crisis, will be the centre-right candidate in next year's election, a senior official in his PDL party was quoted as saying on Thursday.

Saddled with a 1.95 trillion euro debt pile and chronic growth problems, Italy has been hit by the investor concerns over Spain, with the two countries often bracketed together as the most vulnerable to a worsening in the crisis.

Moody's cited an increased likelihood that Spain may require further external help in its statement.

Euro zone finance ministers this week made 30 billion euros available by the end of July for troubled Spanish banks. Madrid unveiled further austerity measures on Wednesday after being granted more time to meet its fiscal targets.

"Italy's perceived creditworthiness is externally driven," said Nicholas Spiro at Spiro Sovereign Strategy. "We find it extremely worrying that there is still insufficient differentiation between Spain and Italy in the markets."

Italy has greater funding needs compared to Spain but it can rely on a bigger and more diversified domestic investor base.

With euro break-up worries keeping foreign investors away from Italian bonds, domestic support is key for the Treasury, which has roughly another 180 billion euros in debt to raise before the end of 2012.