Italy had to pay the most in 14 years to sell five-year bonds asParliament rushes to pass a 30 billion-euro ($39 billion) budgetplan that Prime Minister Mario Monti says will bring down recordborrowing costs.

The Rome-based Treasury sold 3 billion euros of the bonds, themaximum for the sale, to yield 6.47 percent, the most since May1997 and up from 6.29 percent at the last auction on Nov. 14.Demand was 1.42 times the amount on offer, compared with 1.47 timeslast month.

Monti's Cabinet approved a sweeping budget plan on Dec. 4 aimedat raising revenue and boosting Italy's anemic growth to persuadeinvestors Italy can tame the region's second-biggest debt and avoida bailout. Parliamentary committees signed off on the amended planlast night, paving the way for a vote this week in the lower house.Monti has warned that failure to approve it could lead to Italy's“collapse” and threaten the survival of the single currency.

“Italy's predicament is dire: it has become a proxy foreuro-zone risk at a time when its funding requirements are about toballoon,” Nicholas Spiro, managing director of Spiro SovereignStrategy in London, said in an e-mail. “Every bond auction inJanuary and February is going to be scrutinized for signs thatItaly is having trouble maintaining market access.”

The euro region's third-largest economy has to repay about 53billion euros in debt in the first quarter from the region's totalmaturing debt of 157 billion euros, according to UBS AG. It owes afurther 3.2 billion euros in interest payments based on the averagefive-year yield of the past three months.

The yield on the benchmark 10-year bond was 6.69 percent afterthe auction at 12:46 p.m. in Rome, up one basis point fromyesterday. That pushed the difference with German bonds to 4.69percentage points. The euro extended its decline against thedollar, trading below $1.30 for the first time since Jan. 12.

Monti, in office less than a month, is seeking to show investorshe can bring down borrowing costs and tame a debt that is biggerthan that of Spain, Greece, Portugal and Ireland combined.Yesterday, he accepted changes proposed by lawmakers to the plan,which the Senate is due to vote on by Dec. 23 following approval inthe Chamber of Deputies.

“We are confident that markets will react positively to theefforts Italy is making, maybe not tomorrow, but the reduction inborrowing costs that we anticipate in the coming months will helpspur the economy,” Monti told the Finance and Budget Committees ofthe Chamber last night in Rome.

Amendments

The package overhauls the pension system, reinstates propertytaxes on primary residences, raises gasoline levies and seeks tospur economic growth by opening up some professions and offeringtax breaks to companies hiring young people and women.

Monti agreed to lawmakers' request to raise the threshold onpensions that will lose cost-of-living increases for the next twoyears to about 1,400 euros a month, from 936 euros in the originalplan. Families paying the new property tax will get a 50-eurocredit per child, according to the amendment, and Italians whosechecking-account balance averages less than 5,000 euros a year willno longer have to pay a 34-euro annual tax.

The government will cover the lost revenue by increasing theplanned levy on Italians who took advantage of previous amnestieson tax evasion. The amendment also adds a tax surcharge on pensionsof more than 200,000 euros a year and imposes a levy on propertyowned by Italians outside of Italy.

Former European Union commissioner Monti, 68, took over lastmonth after Silvio Berlusconi resigned as premier on Nov. 12.Berlusconi's parliamentary majority had eroded as the country's10-year bond yield surged over the 7 percent threshold thatprompted Greece, Ireland and Portugal to seek bailouts.

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