Italy’s Deficit at EU Limit Last Year for First Time Since 2008

Italy’s budget deficit fell last year to the European Union limit for the first time since 2008 as austerity policies offset the effects of the longest recession in more than two decades, official EU figures showed.

The shortfall declined to 3 percent of gross domestic product from 3.8 percent in 2011, Eurostat statistics office said in a report today. The country’s debt reached 127 percent of GDP, Eurostat said.

As Italy borrows to contribute to bailouts and pay arrears to suppliers, the nation’s debt will rise to 130.4 percent in 2013, outgoing Prime Minister Mario Monti’s government forecast earlier this month. The budget deficit will drop to 2.9 percent, putting Italy below the EU’s 3 percent limit, an April 10 report by the Treasury said. The report also said the region’s third- biggest economy will shrink 1.3 percent in 2013, before expanding by the same amount next year.

Italian government bonds advanced, pushing the 10-year yield to the lowest since January, amid expectations re-elected president Giorgio Napolitano will succeed in ending the nation’s two months of political gridlock. The yield fell 10 basis points to 4.12 percent as of 10:50 a.m. in Rome.

Italy may need as much as 7 billion euros in additional spending cuts this year to meet its deficit goal, said Finance Undersecretary Gianfranco Polillo in an April 15 interview.

-- Editors: Andrew Davis, Jerrold Colten

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

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

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