Bloomberg News

Berlusconi’s Cabinet Fails to Agree on Measures Before EU Summit

October 25, 2011

Oct. 25 (Bloomberg) -- Prime Minister Silvio Berlusconi’s Cabinet failed to agree on steps to spur economic growth after the European Union urged Italy to push through “comprehensive” measures to fight the sovereign-debt crisis.

The meeting concluded last night in Rome without taking any decisions amid opposition to a plan to raise the retirement age by the Northern League, Berlusconi’s key ally. In a statement before the talks, the premier defended his commitment to fiscal rigor, saying Italy is meeting its “public-debt obligations.”

The European Commission yesterday called on Italy, which has the euro region’s second-biggest debt load after Greece, to enact “swift adoption followed by rigorous implementation” of growth measures. Berlusconi responded by saying his government was preparing to take “important decisions” on structural changes, as EU leaders prepare to meet for a second summit this week in Brussels tomorrow.

“We have a primary surplus stronger than our partners, we will reach a balanced budget in 2013,” Berlusconi said in the e-mailed statement. “Nobody has anything to fear about Europe’s third-largest economy,” he said.

The yield on Italy’s benchmark 10-year bonds climbed three basis points to 5.98 percent as of 9:43 a.m. in Rome, pushing the difference with German bunds of equivalent maturity to 386 basis points. That spread reached 400 basis points last week for the first time since Sept. 22, even after the European Central Bank started buying Italian and Spanish debt on Aug. 8 to stem surging borrowing costs.

Not Resigning

Berlusconi, struggling to hold together his fractious coalition, told President Giorgio Napolitano yesterday that he doesn’t plan to resign before his term ends in 2013 and will press ahead with measures to convince European partners that Italy can tame the debt crisis, Corriere della Sera reported today, without citing anyone.

Italy’s economy expanded 0.3 percent in the second quarter from the three months through March, when it grew 0.1 percent. The country’s credit rating has been lowered by the three main rating companies, starting with Standard & Poor’s on Sept. 19.

Italy faces a “slowdown almost certainly leading to a recession in 2012 and 2013,” Vladimir Pillonca, senior European economist at Societe Generale SA in London, said in a report today. Weak growth means “Italy’s economy and fiscal position will remain highly vulnerable to shocks” and the “perceived macro risk is likely to remain high.”

Summit Tension

Berlusconi was put on the defensive over the country’s finances at an Oct. 23 EU summit in Brussels. French President Nicolas Sarkozy told reporters he had confidence in “Italian authorities as a whole,” while declining to answer a follow-up question on whether he had confidence in the Italian premier.

Berlusconi appeared to take issue with the comments, saying “nobody can give lectures” to other EU members. “Nobody in the EU can self-nominate himself commissioner and speak in the name of elected governments,” he said in the statement.

The ECB began buying Italian and Spanish debt after borrowing costs soared to euro-era highs amid investor concern that the nations may succumb to the sovereign crisis. Spanish and Italian bonds fell after Europe’s leaders struggled at the weekend summit to convince investors they can craft an effective response to the debt ordeal.

Berlusconi, 75, said the euro “is the only currency that doesn’t have standing behind it, like the dollar or the pound or the yen, a lender of last resort willing to structurally defend its credibility in the face of aggressive financial markets.” The situation “must be corrected once and for all.”

--Editors: Jeffrey Donovan, Dan Liefgreen

To contact the reporter on this story: Lorenzo Totaro in Rome at

To contact the editor responsible for this story: Craig Stirling at

The Aging of Abercrombie & Fitch
blog comments powered by Disqus