Italy under pressure ahead of key eurozone summit

21st October 2011, Comments 0 comments

Days before key Eurozone summits, Italy is under pressure from European partners demanding assurances that the government can meet its austerity commitments and put the economy back on track.

"We expect Italy on Sunday to reiterate in a clear fashion its plans for structural reforms and stabilizing the budget," EU Economic Affairs Commissioner Olli Rehn said Friday in the French Les Echoes newspaper.

As eurozone finance ministers began meetings in Brussels, Rehn's spokesman Amadeu Altafaj said it was crucial to "reinforce confidence in the capacity of the Italian economy to overcome the present challenges."

The measures demanded of Italy "as a matter of urgency" are to include "not only fiscal consolidation, but also growth-enhancing reforms," which the spokesman said were "extremely important in the Italian economy."

Under intense pressure from the markets, Italy adopted two draconian austerity packages in July and September to enable it to balance its budget by 2013 and reduce its colossal debt equal to around 120 percent of Gross Domestic Product -- way above the EU's 60 percent limit.

But Rome has balked at the price to pay in following through, exposing Italy again to the wrath of the markets and ratings agencies and sparking EU calls for fresh assurances that infighting in the ruling coalition will not block the austerity programmes.

The government bickered and dithered all summer, postponing an announcement on growth measures from the start of September to the end of this month, and watering down reforms to the frustration of business leaders and economists.

Last week, Bank of Italy governor and future head of the European Central Bank Mario Draghi, called on Prime Minister Silvio Berlusconi's government to act fast to save the country -- and Europe -- from the debt crisis.

As protesters against Italy's severe austerity cuts took to the streets, Draghi said Eurozone members must behave responsibly, "rigorously" adhering to their commitments to "contribute in a decisive way to saving Europe."

A government source told AFP that Italy was still "determined" to balance its budget and insisted that the country's annual public deficit -- which should drop from 4.6 percent of GDP to 3.9 percent this year -- is one of the lowest in Europe.

He said the unemployment rate "is lower than the average in Europe" and the pension system, which has been reformed over the past few years, is solid.

But Berlusconi -- who faces calls for his resignation from both the opposition and members of his own beleaguered coalition -- may need to have something more concrete to offer his European critics in Brussels this weekend.

Among other problems, he faces pressure from French President Nicolas Sarkozy to find a way to resolve a contentious diplomatic issue concerning ECB board member Lorenzo Bini Smaghi.

When Draghi was appointed to take over as ECB head in June -- with French support -- officials widely speculated Bini Smaghi would resign following the unwritten rule that no country holds two board seats at the same time.

It was thought likely he would be made Bank of Italy head in exchange.

But late on Thursday Berlusconi chose another candidate, Ignazio Visco, and Italy's Il Sole 24 Ore business daily said a "disappointed" Bini Smaghi would not step down from the ECB, forcing Italy to "find another solution" fast.

The ECB refused to comment.

Berlusconi is expected to attempt to reassure Sarkozy during the summit on Sunday that "a solution will be found by the end of the year," the newspaper said.

EU leaders meet again next Wednesday to go over the results of Sunday's talks in the hope of finalising a comprehensive deal to resolve the eurozone debt crisis before the G20 summit in France early next month.

© 2011 AFP

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