FRANKFURT, Germany (AP) ? The euro slid below $1.30 on Wednesday for the first time since the early days of 2011 and Italian borrowing rates rose ominously, as the optimism from a dramatic European summit last week fades with the realization that the continent's underlying debt problems remain unsolved.
Italy's last bond auction of the year Wednesday showed the heavily indebted country facing even higher rates to get investors to lend it their cash. The eurozone's third-largest economy paid 6.47 percent interest to borrow euro3 billion ($3.95 billion) for five years at a bond auction, up from 6.30 percent just a month ago.
Higher rates are a sign that last week's agreement to tighten the rules against eurozone governments piling up debt has failed to restore confidence.
That's evident in the performance of the euro too, which has suffered an acute bout of selling since Friday's deal. On Wednesday, it traded below $1.30 for the first time since January 12, hitting a low of $1.2968.
As experts from the different capitals start the laborious work of putting the deal into practice through a new treaty, the questions continued about the financial steadiness of governments, banks and the eurozone economy, which is showing signs of sinking back into recession. Industrial production fell a further 0.1 percent in October, yet another sign of weakness many think will lead to a recession that will only make repaying debt harder.
"The process of negotiating the final deal to suit all will only add to doubts about its relevance in the long run ? meanwhile the immediate crisis continues," said Elisabeth Afseth, an analyst at Evolution Securities.
While praised as a step toward preventing another buildup of debt in coming years, last week's deal does not provide a convincing resolution to the crisis. It does not reduce current debt levels and offered little reassurance that eurozone governments will be able to find the money they need to roll over those debts in the coming few months.
It did not convince markets there is a financial backstop big and flexible enough to support Italy and Spain, the latest focus of the two-year old debt crisis that began in October 2009 when Greece admitted its finances were much worse than it had previously said.
Greece, Ireland and Portugal have all needed bailouts as fear of default spread from country to country and drove up their borrowing rates, eventually cutting them off from bond markets.
The summit did come up with a commitment from EU governments to loan up to euro200 ($264 billion) to the International Monetary Fund, which in turn could help out the eurozone.
Leaders also agreed to activate a new euro500 billion ($659 billion) euro backstop fund, the European Stability Mechanism, a year ahead of time in July. But since the existing rescue funds, which have the same financing caps, would expire once the ESM comes into force, the overall amount of money available from the eurozone to help out struggling governments will remain the same.
The fund is still considered too small to convincingly backstop Italy, which has euro1.9 trillion ($2.5 trillion) in outstanding debt. That leaves many economists saying that eventually the European Central Bank will have to step up its so-far limited purchases of government debt.
They say only a clear statement by the ECB that it will buy as much debt as needed to keep borrowing costs down can convince markets. That is because the ECB has the power to buy bonds with newly-created money.
The bank however has held off, with ECB head Mario Draghi saying governments must cut deficits and take steps to improve growth themselves to win back bond market confidence ? and not rely on central bank bailouts.
The current limited bond buys have eased some of the pressure on Italy, but the bank says they are only intended to steer short term interest rates, which is its main job.
Draghi must also contend with fierce opposition to printing money to fund large-scale bond purchase from Germany's Bundesbank central bank, which is part of the ECB.
Bundesbank head Jens Weidmann is the leading critic of the idea, saying that creating new money would violate the bank's legal mandate, since the EU treaty requires it to fight inflation as its first priority.
The debt treaty does provide some assurance governments are working together to address the euro's flaws in the long-term. But it will not be signed until March at the earliest, and a text must first win approval from the 17 eurozone governments and nine others that the EU hopes will sign. Britain has said it will not.
The first draft of the new treaty is expected to be circulated among European capitals sometime next week, EU officials say, but governments will likely try to keep its content confidential until some of the more tricky issues have been resolved.
The biggest among these is how the new accord will interact with the existing Treaty of the European Union and whether it can rely on EU institutions, such as the European Commission and the European Court of Justice, to enforce the new budget rules.
Governments and national parliaments are also likely to watch closely how much sovereignty they are transferring to Brussels or their fellow euro members and whether their own constitutions will be affected.
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Gabriele Steinhauser is Brussels contributed to this report.
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