adminthat escalating market turmoil could drag Italy into a full-scale debt crisis.
Reaction to Berlusconi’s speech on Wednesday was generally critical. With expectations growing that the European Central Bank may step in and buy Italian and Spanish bonds, markets rallied at the opening before falling back later in the morning. Berlusconi, who spoke after the close of trading on Wednesday, said Italy’s fundamentals were sound but that markets had not appreciated the strength of its banks and the underlying solidity of its economy.
“It was legitimate to have expected much more from the prime minister’s speech in parliament,” Corriere della Sera, Italy’s leading daily, said in a front page editorial.
Italy has been in the crosshairs of the bond markets since early July as doubts have grown about the sustainability of its huge public debt and the ability of its fractious government to implement deep-seated economic reform.
Yields on 10-year Italian bonds are over 6 percent, a level seen as unsustainable in the long term. Spreads over their benchmark German equivalents were around 360 points, just 10 basis points below the Spanish equivalents.
“I think the market is betting against Italy regardless of Berlusconi, but clearly the political situation doesn’t help,” said Lorenzo Crispoltoni, senior fund manager at Banca Fideuram in Milan after Wednesday’s speech.
“Italy badly needs reforms to liberalise the economy, all the politicians are talking about them but the market cannot see anything concrete,” he said.
In his speech on Wednesday, Berlusconi called on all sides to help pass reform, but he offered few details and made no promise to bring forward the government’s target of restoring the budget to balance by 2014 with extra cuts in spending.
Long sheltered by a perception that its public finances were under control and its banking system solid, Italy, the eurozone’s third biggest economy, now risks being sucked into a Greek-style emergency that could overwhelm the whole bloc.
With Berlusconi mired in scandal and facing four separate trials on charges ranging from fraud to paying for sex with an underage prostitute, there have been growing calls for change and a clearer reform agenda.
In an interview with Italian news agency ANSA, Fiat chief executive Sergio Marchionne, one of a small group of Italian executives with genuine international standing, said the situation in Italy was becoming intolerable. – Reuters.
“We cannot allow this confusion to go on. We need stronger leadership to restore credibility to this country,” he said.
“Obviously it’s not up to me to name names, that’s not my job, but the world doesn’t understand this confusion, doesn’t understand what’s happening in Italy, and that’s really hurting us a very great deal.”
The opposition has repeated its calls for Berlusconi to step down and make way either for elections or a so-called “technical government” of experts to steer Italy through the crisis.
Berlusconi has flagged his meeting with unions and employers on Thursday as a chance to establish the basis for broad reforms in areas like labour law and regulation. Unions have already reacted sceptically.
Italy has had one of the world’s slowest growing economies for more than a decade with growth well below the levels needed to cut into a public debt mountain now equivalent to around 120 percent of gross domestic product.
Economists and bodies such as the International Monetary Fund have long urged Italy to ease market restrictions on products and services and introduce more flexible employment rules to spur growth and employment.
Last month, parliament passed a 48-billion-euro austerity plan, but the programme has been widely criticised for delaying the bulk of the measures until after elections due in 2013 and for doing little to revive the sluggish economy.-Reuters
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