Italy's borrowing costs rise with spreading euro crisis

The main measure of Italy's borrowing costs broke above 6 per cent for the first time in 14 years before easing yesterday as the euro zone's third largest economy teetered on the edge of the EU bloc's latest debt crisis.

The cost of insuring Italian debt against default also increased as efforts continued to reach an agreement over a second bailout for Greece where the crisis began.

The crisis has eroded investor confidence in policymakers' ability to hold the bloc together.

According to analysts, confusion over the Italian government's deficit-cutting and fears that they may be watered down by parliament are adding to investors' concerns.

They add that Italy was by far the country with the greatest sensitivity to rising debt servicing costs and particularly in terms of rolling over debt. They add this was not a situation it could afford to have going on for any sustained period of time.

Italy has one of the world's highest levels of public debt at  around 120 per cent of gross domestic product. This is only second to Greece in the euro zone. A total of €176 billion in Italian government paper would fall due by the end of the year.