Berlusconi Drives Italian Growth Agenda as Bond Yields Stoke Debt Concern
Italy's Prime Minister Silvio Berlusconi
Alessandra Benedetti/Bloomberg
Italy's Prime Minister Silvio Berlusconi sits with Italy's Finance Minister Giulio Tremonti.
Italy's Prime Minister Silvio Berlusconi sits with Italy's Finance Minister Giulio Tremonti. Photographer: Alessandra Benedetti/Bloomberg
Prime Minister Silvio Berlusconi urged Italians not to be “scared” by surging bond yields, saying the country will weather the market storm, after meeting with executives, bankers and unions on the economy.
The discussions in Rome today came after the premier, rejecting calls to resign, addressed both houses of Parliament yesterday on the nation's economy. Italy must cut red tape and lower taxes to boost growth and tame the euro region’s second- biggest debt, he said following the session.
“I don’t think the crisis will get worse and we mustn’t be scared by the fact that the spreads can remain at their current levels,” Berlusconi told a press briefing in Rome. “The rise in yields would affect only a fraction” of the debt, “which means the costs would be very relative.”
Berlusconi is struggling to convince investors that Italy won’t become the next victim of Europe’s debt crisis. Italian bonds rose after his comments, which coincided with remarks in Frankfurt by European Central Bank President Jean-Claude Trichet, who told a press conference he couldn’t exclude that the central bank “could buy euro-area government bonds today.”
“I wouldn’t be surprised that before the end of this teleconference you would see something on the market,” Trichet said after the ECB kept its benchmark interest rate at 1.5 percent. “It is an ongoing program.”
Italy’s 10-year bond yielded 5.99 percent as of 3:04 p.m. in Rome, compared with 6.08 percent at yesterday’s close. The difference in yield, or spread, that investors demand to hold the securities instead of German bunds was at 355 basis points, after closing at 368 basis points yesterday.
Sagging Sentiment
Confidence in Italy has been further shaken by political turmoil, with Berlusconi’s grip on power weakened by corruption allegations against him and some of his main allies. Berlusconi yesterday blamed turmoil in international markets for the slump in bonds and said that markets were mispricing risk.
Trichet today also urged Italy to adopt structural reforms. Finance Minister Giulio Tremonti said the government’s priorities remain overhauling the tax and welfare system. He said the government presented its “working method” on the economy to unions and executives during today’s talks, and also will share the plan with European Union institutions, the International Monetary Fund and the Organization for Economic Cooperation and Development. Tremonti also urged Europe not to dawdle and quickly approve upgrades to the region’s rescue fund.
Berlusconi may move up the introduction of a tax overhaul that would speed the closing of loopholes and deductions worth 25 billion euros ($35 billion), Ansa reported late yesterday. Such an effort would make the government’s recent 48 billion- euro austerity plan “more credible,” Chiara Corsa, an economist at UniCredit Research in Milan, said in a note to investors.
Emma Marcegaglia, president of employers’ lobby Confindustria, said she called for more government spending cuts, a balanced budget, a “major” privatization plan and labor-market reforms.
“The points were welcomed by the government,” she said. “We asked for things that don’t cost public money, but bring money in. We’ll see what the government decides to do in the coming days.”
To contact the reporter on this story: Jeffrey Donovan at jdonovan26@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net.
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