(Updates with details on deficit and debt in third-fourth paragraphs, bond auction in final paragraph. For more on the European debt crisis, see EXT4.)
Oct. 28 (Bloomberg) -- Italy’s low level of household borrowing helps buffer the euro-region’s second-largest debt, making the nation “the most solid country in Europe after Germany,” Prime Minister Silvio Berlusconi said.
Italy’s austerity measures will only produce the desired effect if they are accompanied with robust economic growth, Berlusconi also said today in remarks at an event in Rome broadcast by Sky TG24. Italy will balance its budget in 2013, when public debt “will start to decline,” the premier said.
Italy’s European partners have stepped up pressure on Berlusconi to come up with new measures to produce the growth needed to reduce debt of more than $2 trillion. Italy already has a primary surplus and its budget deficit of 4.6 percent of economic output last year was lower than that of France, the U.K. and the U.S.
Italy had the lowest level of household debt in western Europe in 2009, according to Bloomberg calculations based on the most recent data available from Eurostat, the European Union’s Luxembourg-based statistics institute. Italy’s household debt level was less than half that in the U.K., Spain and Sweden, and a third less than Germany, the region’s biggest economy.
Berlusconi presented EU allies at a summit this week with a timeline of planned austerity measures to erase the country’s budget shortfall within two years. Still, economic growth that has trailed the euro-region average for the past decade means it will be harder to reduce public debt amounting to about 120 percent of output, second only to Greece in the currency union.
Italy refrained from the stimulus spending of other euro nations after the global recession of 2009 that contributed to a surge in deficits that led to a jump in debt levels. Italy’s debt rose by less than 3 percent of gross domestic product last year, less than half the increase in the U.K. and a third of the jump in Germany.
Italian bonds yields have surged as contagion from the debt crisis spread. The country’s anemic growth has fueled concerns among investors and ratings companies that Italy may struggle to bring down a public debt load that’s more than Spain, Greece, Ireland and Portugal combined.
The yield on Italy’s 10-year bond closed at 6.02 percent today, about 400 basis points more than that of Germany, after the Treasury was forced to pay almost 5 percent to borrow for three years at an auction, a euro-era record.
--With assistance from Giovanni Salzano in Rome. Editors: Andrew Davis, Jeffrey Donovan
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