Bloomberg News

Italy Needs Growth to Cut Debt, Restore Confidence, Visco Says

November 25, 2011

Nov. 25 (Bloomberg) -- Italy needs to return to growth to cut Europe’s second-biggest debt as rising yields make it difficult to control borrowing costs, Bank of Italy Governor Ignazio Visco said.

“The growing tension on financial markets in recent months has made for a precarious equilibrium” in the country’s public finances, Visco said in a speech in Catania, Sicily. That “has nurtured operators’ doubts about the sustainability of Italy’s sovereign debt,” he said, according to a text of the speech e- mailed by the central bank.

Prime Minister Mario Monti has committed to spurring economic growth and cutting Italy’s 1.9 trillion-euro ($2.5 trillion) debt, equivalent to about 120 percent of gross domestic product, the second-biggest burden in the euro-region after Greece. Monti said this week that growth and austerity measures passed by Italy’s previous government are a “starting point” for overhauling the economy.

Silvio Berlusconi resigned this month as prime minister after Italy’s 10-year benchmark bond yield surged over the 7 percent threshold that prompted Greece, Ireland and Portugal to seek bailouts. The 10-year yield today was again over that limit, reaching 7.21 percent at 10:44 p.m. in Rome.

“Interventions adopted since this summer improved the public finances, but weren’t sufficient,” said Visco, who earlier this month replaced Mario Draghi as the head of the Rome-based central bank. Draghi is now president of the European Central Bank. “It’s key that the country returns to growth to ensure a structural and lasting equilibrium.”

Tax, Pension Rules

The new administration may reinstate property taxes, overhaul the tax system and pension rules, trim the size of the government and modify labor laws, Monti told parliament last week.

In a joint press conference with German Chancellor Angela Merkel and French President Nicolas Sarkozy in Strasbourg yesterday, Monti said Italy remains committed to balancing its budget in 2013. The European Commission forecast on Nov. 10 that Italy will have a budget deficit of 1.2 percent of economic output in 2013 as slowing growth weighs on tax revenue.

--Editors: Jerrold Colten, Dan Liefgreen

To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net.


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