24th Jun 2021

Berlusconi pep talk struggles to persuade markets

  • Rome's troubles are far from over (Photo: Giampaolo Macorig)

Italy's Prime Minister Silvio Berlusconi on Wednesday (3 August) sought to allay market fears, claiming his country's economy is "solid" and "strong", as the borrowing cost for Rome has reached unsustainable levels.

"This is not an Italian crisis, but a planetary one ... We will not follow the nervousness of the markets," Berlusconi pledged in a 35-minute speech to parliament, insisting that Italy had "solid economic foundations" with "solvent" banks and low private debt.

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He delayed his speech by two and a half hours, waiting for the Milan stock exchange to close after a day of heavy losses.

Rome's rising borrowing costs are "excessive" and a reflection of a "crisis of faith in the international markets" Berlusconi went on, after Italian bond yields this week spiked to over 6 percent - a threshold above which they are considered unsustainable in the long run.

Pledging not to step down before the end of his mandate in 2013, Berlusconi said a €70 billion austerity package passed last month and growth-boosting measures of €9 billion in the poorer south approved on Wednesday should give confidence in the Italian economy.

"Our duty as the government is to work for the good of Italy, making the economy take off," he said.

Earlier that day, EU commission chief Jose Manuel Barroso said the spike in borrowing costs for Italy and Spain, whose bond yields also went over the 6 percent threshold "reflect a growing concern among investors about the systemic capacity of the euro area to respond to the evolving crisis."

Barroso said it was imperative for eurozone countries to pass "without delay" the laws necessary to make the EU bailout fund more flexible and allow it to pre-empt contagion to other economies. The deal, agreed last month at a crunch summit in Brussels, has not yet been implemented as most national parliaments have gone into summer recess.

Meanwhile, a British think tank, the Centre for Economics and Business Research, has projected that Rome's heavy debt will lead it to default, while Madrid may just avoid disaster.

In a report published on Thursday, the think-tank calculated that Italy's debt would rise from 128 percent of GDP to 150 percent by 2017 if bond yields stay above the current six percent threshold and growth remains stagnant.

The conditions in Spain are better because its debt would not exceed 75 percent of GDP, even in the worst case scenario.

"Realistically, Italy is bound to default, but Spain may just get away without having to do so," Doug McWilliams from the CEBR said, as quoted by the BBC.


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