Spain fear also pushing Italy towards the brink (MoneyWatch) Italy's borrowing costs on its three-year bonds skyrocketed Thursday to their highest level in seven months, as investors worried about the impact of Spain's economic problems on the highly indebted country. The rate for Italy's three-year notes rose 1.4 percentage points to 5.3 percent since the last such auction just a month ago. Rome was able to raise all of the $3.76 billion it wanted to but the high rate shows investors are increasingly wary of lending to the country, whose debt is increasing even as it struggles with a deep recession. Italy also auctioned 10-year bonds at a worryingly high rate of 6.13 percent - up from 5.33 percent in May - and 15-year bonds at 6.1 percent, nearly a full percentage point from the last auction in April. Italy's overall debt is an enormous $2.4 trillion, or about 120 percent of GDP as of the end of 2011. This has required the nation to frequently sell bonds to repay investors whose bonds are expiring. Italian Prime Minister Mario Monti has struggled to institute budgetary reforms in the nation where non-payment of taxes runs rampant. Today Parliamentary Affairs Minister Piero Giarda, in charge of a public spending review, said Italy will seek to cut $6.3 billion in state administration spending this year instead of a previously announced $5.2 billion. The money saved would help fund areas hit by two earthquakes last month. Spain bonds nearing critical 7 percent mark Spanish pull money from banks at record pace Monti's technocratic government came to power in November with broad, bipartisan support from political parties to reform the economy. However, as the recession has deepened that support has waned. Legislators are increasingly wary of backing new austerity efforts and private interests have been working with them to water down reforms that have already been passed. Italy is trying to cut government spending at a time when its battered economy desperately needs stimulus: Although the unemployment rate is still low when compared to Spain or Greece, it has gone from 8 percent to 10 percent over the last 12 months. For those 25 and under it has risen from 28 percent to 36 percent. These numbers are believed to be lower than they should be because so many people have stopped registering with the government. Industrial output is falling fast. Total production is down nearly 25 percent since early 2008. GDP is also falling as the recession grows. Italy's central bank is hoping the decline does not exceed 1.5 percent. Net national income, consumer demand and standard of living are also falling.