(Adds time of cabinet meeting today in third paragraph, markets in fourth. For more on Europe’s debt crisis, see EXT4.)
Oct. 24 (Bloomberg) -- Italian Prime Minister Silvio Berlusconi was put on the defensive at a crisis summit over the nation’s finances and appointments at the European Central Bank.
Before the leaders convened yesterday in Brussels, Berlusconi held face-to-face talks with European Union President Herman Van Rompuy and European Commission President Jose Barroso and then with German Chancellor Angela Merkel and French President Nicolas Sarkozy.
“I never flunked” an exam in my life, Berlusconi told reporters when asked if he was concerned over the push to cut Italy’s debt load, the biggest in Europe as a percentage of economic output after Greece. The premier added that he is thinking about a reform of the pension system and that new measures will be discussed at a cabinet meeting today. Ministers will meet at 6 p.m. in Rome, according to a statement posted on the government’s website.
The demand for discipline underscored European leaders’ concern of the vulnerability of Italy, whose debt totals more than $2 trillion, accounting for almost 120 percent of its gross domestic product. The ECB started buying Italian bonds two months ago to contain borrowing costs as yields surged. Italian bonds opened lower today, with the yield on the 10-year security rising four basis points to 5.93 percent. The yield spread with the German bunds widened 8 basis points to 387 basis points.
The jousting over Italy’s economy, which Berlusconi called solid, came as the billionaire sought to placate Sarkozy over the refusal of Lorenzo Bini Smaghi to quit his post on the Executive Board of the Frankfurt-based central bank.
No ‘Casus Belli’
Sarkozy backed Italy’s Mario Draghi to replace France’s Jean-Claude Trichet as head of the ECB with the understanding that the Florence-born Bini Smaghi would quit and make way for a French candidate for the board. Berlusconi passed over Bini Smaghi last week as Draghi’s replacement at the Bank of Italy.
“I’m sure that Bini Smaghi will realize that he cannot be the casus belli of a relationship that is worsening between us and France and that he will quit by the end of the year, as it was agreed,” Berlusconi told reporters.
“What should I do, should I kill him?” the 75-year-old Berlusconi said he told Sarkozy.
Berlusconi, who was caught on a wiretap published in a newspaper last month insulting Merkel, said he had a “long” conversation with the German leader about government finances at a meeting of European conservative leaders on the eve of the summit. Asked whether she was convinced by budget cuts Italy has taken, Berlusconi said: “I think so.”
Merkel called the meeting yesterday a “conversation among friends” with the leader of “a great and important partner for the euro area.”
The Italian government passed a 54 billion-euro package of spending cuts and tax increases in August to convince the ECB to purchase Italian bonds after the nation’s borrowing costs surged to euro-era records. The plan aims to balance the budget by 2013.
“Confidence won’t result merely from a firewall,” Merkel said. “Italy has great economic strength, but Italy does also have a very high level of debt and that has to be reduced in a credible way in the years ahead.”
Asked if he has confidence in the capacity of Italy to carry out economic reforms, Sarkozy said he had confidence in the country.
“Let’s trust the sense of responsibility of the Italian authorities as a whole,” Sarkozy said at a press conference. He declined to answer a follow-up question about whether he had confidence in Berlusconi, allowing Merkel to speak instead.
--With assistance from Mark Deen and Tony Czuczka in Brussels and Lorenzo Totaro in Rome. Editors: James Hertling, Andrew Davis
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