Italy’s Debt May Swell as Austerity Chokes Growth: Euro Credit

Italy’s austerity drive, enacted in exchange for European Central Bank bond purchases driving down borrowing costs, may backfire as it chokes the economic growth needed to ease Europe’s second-biggest debt burden.

Prime Minister Silvio Berlusconi’s Cabinet approved 45.5 billion euros ($66 billion) in deficit reductions in Rome on Aug. 12, the nation’s second austerity package in a month, to balance the budget in 2013 and convince investors that Italy can trim debt of about 120 percent of gross domestic product. That’s the biggest ratio in Europe after Greece, whose fiscal woes sparked the sovereign crisis last year.