Bloomberg News

Italian Government Bond Yields Must Go Down Further, Monti Says

February 02, 2012

Feb. 1 (Bloomberg) -- Prime Minister Mario Monti said Italian government bond yields must fall further to reduce the country’s borrowing costs.

The yields “need to go down further than they have already done,” Monti, 68, said in an interview with the TG5 television news program on Canale 5. “I expect them to do so.”

Fitch Ratings and Standard & Poor’s last month lowered the nation’s credit rating. Still, Italian bond yields have fallen as the European Central Bank offered banks unlimited three-year loans. The 10-year bond yield narrowed 27 basis points to 5.68 percent today, while the spread over comparable German bunds fell to as low as 3.82 percentage points, the least since Dec. 8.

Italy may be in its fourth recession in a decade after its gross domestic product contracted in the third quarter of 2011. On Jan. 24 the International Monetary Fund estimated in its World Economic Outlook Update that the Italy may contract 2.2 percent in 2012 and 0.6 percent in 2013.

Monti also said that he looks forward to leaving the country in better shape at the end of his government’s term in the spring of 2013.

Monti’s cabinet passed last month a package of measures aimed at spurring competition and boosting economic growth by streamlining the country’s bureaucracy and opening up professions. In December his government pushed through 20 billion euros ($26 billion) in tax increases and spending cuts that have further choked growth.

Fiscal Discipline

Italy can cut its ratio of debt to GDP to less than 100 percent in 2020 by meeting its goal of eliminating the public deficit in 2013, Deputy Finance Minister Vittorio Grilli said at a news briefing in Rome earlier today. New European Union rules will force countries with debt over the limit of 60 percent of GDP to cut the excess by 1/20th a year, Grilli also said.

The prime minister said state asset sales are not a priority, though there may be “some room” for them in the future.

The government estimates a contraction of 0.5 percent in GDP in 2012 and “flat growth” next year. That forecast doesn’t take into account the effect of the legislation aimed at fighting tax evasion and boosting growth.

Monti’s economic overhaul will help Italy grow after years of “virtual stagnation,” Salvatore Rossi, the central bank’s deputy director general, told lawmakers in Rome today, according to an e-mailed text.

Monti said the support of his predecessor, Silvio Berlusconi, is “key” for his government. Monti doesn’t take parliamentary backing for granted, he told, adding the support of parties besides Berlusconi’s is also important.

Canale 5 is owned by owned by Mediaset SpA, the broadcast company of Berlusconi.

--Editors: Kevin Costelloe, Jim Silver.

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.ne


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