Italian bond sale takes the heat off Rome

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In Rome, there was satisfaction. In Athens, there was more frustration.

Despite a recent ratings outlook downgrade, Monday's successful Italian bond auction dispelled some fears that the euro zone's third-largest economy is destined to become the next debt-crisis victim.

Italy paid slightly lower yields on €3.5-billion of bonds due in 2014 than in a similar sale a month ago. Two other Italian bond sales totalling about €4.8-billion went out the door with relative ease on Monday.

As Italian treasury and finance bosses relaxed, their Greek counterparts were assaulted with more political and popular opposition to their reform packages as the deadline approaches to negotiate fresh bailout loans. Greece's conservative opposition party demanded tax cuts as the price for support for the deeper reform package proposed by the socialist government, one that includes a €50-billion privatization effort.

However, the government of Prime Minister George Papandreou made it known that it would push ahead with the reforms in the absence of political consensus. The decision has triggered unrest throughout Greece. On Monday, about 400 employees of Hellenic Postbank, which is to be privatized, rallied in front of the parliament buildings. The night before, tens of thousands of people marched in central Athens to denounce government demands for deeper austerity measures as the country teeters on the brink of default.

The International Monetary Fund, co-sponsor with the European Union of last year's €110-billion Greek bailout, has said it will not pay the next instalment of its loan to Greece unless the government can show it can meet its financing requirements for the next 12 months. The IMF demand has put enormous pressure on Athens to come up with deeper reform plans, such as a quick privatization program, and on the EU to produce more bailout cash.

Germany wants holders of Greek debt - the banks - to share part of the bailout burden. The idea is that the private bondholders would agree to a voluntary extension of debt maturities, with no change to the interest rate or the principal amount.

The European Central Bank vehemently opposes the idea. If fears that a voluntary "soft restructuring" of the privately held debt would trigger ratings downgrades, virtually guaranteeing a new bank crisis because Greek banks would no longer be able to use the debt as collateral for ECB loans.

On Monday, the Financial Times reported that the EU wants to take a role in Greek tax collection and privatizations as a condition of additional bailout loans. Tax evasion in Greece is endemic.

Ireland's debt crisis, meanwhile, shows no sign of easing. Over the weekend, Transport Minister Leo Varadkar said his country might be shut out of the commercial funding market until 2013, a year later than envisaged under the €67.5-billion EU and IMF bailout it received late last year, as Irish bond yields soar.

His comments, reported in The Sunday Times, suggested a second bailout might be needed. But Finance Minister Michael Noonan moved quickly to contract Mr. Varadkar, saying no second bailout would be needed.