Italy borrowing rates hit record after budget vote

Italy's cost of borrowing has risen to a new record, after Prime Minister Silvio Berlusconi only managed to win a budget vote because the opposition abstained.

The yield on Italian 10-year government bonds rose to 6.77%, the highest since the euro was founded in 1999.

Investors fear that the eurozone's third-biggest economy could become the next victim of the debt crisis.

Later, Mr Berlusconi confirmed that he plans to resign after passing reforms.

He won the budget vote, receiving 308 votes out of 630, with 321 abstentions and no votes against.

"The government no longer has a majority in this chamber," Pier Luigi Bersani, the leader of the main opposition party, said after the vote.

To Mr Berlusconi, he added: "Hand in your resignation."

The euro rose against the dollar following the announcement of Mr Berlusconi's plans to resign, up 0.5% to $1.384.

Italy's benchmark 10-year debt has been rising sharply and the yield is now past the point that forced other eurozone countries to seek a bailout.

Short-term borrowing costs have been rising at an even faster rate. Italy has to roll over more than 360bn euros (£309bn) of debt in 2012.

The country's cost of borrowing is much higher than the 1.8% interest rate currently faced by Germany.

Greece, the Irish Republic and Portugal have all been bailed out.

'Can't hope for help'

Mr Berlusconi has promised to push through another round of reforms to appease the financial markets.

Austria's finance minister said on Tuesday that Italy is too big to fail.

Crisis jargon buster
Use the dropdown for easy-to-understand explanations of key financial terms:
The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

"Italy knows that given the size of the country, it can't hope to get help from outside," Maria Fekter said. "That's why these huge efforts are made in Italy at the moment."

She spoke as finance ministers from all 27 nations in the European Union were meeting in Brussels to discuss the October agreement to boost its ability to rescue nations in the eurozone.

The benchmark index on the Milan bourse rose almost 2.3%, before falling back to close up by 0.74%.

Germany's Dax index closed up 0.6%, France's Cac40 index rose 1.3%, while UK stocks rose 1.0%.

Banks were among the best performers on the markets. Societe Generale rose 7.3%, BNP Paribas rose 1.8% and Deutsche Bank gained 1.2%.

Societe Generale had earlier reported quarterly profits had fallen 31% because of a 60% write-off on its Greek loans.

Concerns over Italy are overshadowing developments in Athens, where Greece's political leaders spent the day locked in debate over the formation of a unity government.