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Europe

Berlusconi tries to assuage fears over Italy debt

Text by News Wires

Latest update : 2011-10-25

Italian Prime Minister Silvio Berlusconi, who is under pressure to provide reassurances to his EU country partners over Italy's debt mountain, said Monday that "no one has anything to fear" from his country's 1.9 trillion debt.

REUTERS - Italy's European partners have no need to worry about Rome's debt mountain and the government will take significant additional measures to tackle the issue, Prime Minister Silvio Berlusconi said Monday.

"No one has anything to fear" over Italy's debt, Berlusconi said in a statement, adding that there was no need for a lecture from the country's partners.

"No one is in a position to teach lessons to their partners," he said, after a weekend EU summit piled pressure on Italy to provide reassurances over its debt of 1.9 trillion euros.

The government called an emergency cabinet meeting to review new austerity measures in light of the summit, with EU leaders set to meet again on Wednesday in the hope of nailing down a solution to the eurozone debt crisis.

But the meeting ended with no annoncement as the cabinet could not reach an agreement on pension reforms, a government source told AFP.

Talks however were continuing between Berlusconi and his ally, the leader of the Northern League, Umberto Bossi, who is opposed to any major changes to pensions.

In Brussels, diplomatic sources said earlier Monday that European officials were mulling using a eurozone rescue fund to buy Italian government bonds in a bid to relieve pressure on its borrowing costs which have begun to rise again.

A plan for the European Financial Stability Facility (EFSF) to take over the bond-buying role of the European Central Bank is being worked on by top eurozone officials, they said.

"Clearly there are people within this forum who are wondering if it isn't time to put this plan to Italy," one diplomat said on condition of anonymity.

Another official said the plan should not be compared to the bailouts agreed for three other eurozone nations over the past year.

"It's not a fully-fledged macro-economic adjustment programme, as is the case with Greece, Ireland and Portugal," the official said.

In a bid to bring down Rome's borrowing costs, the European Central Bank bought billions of euros in Italian bonds in August when markets pushed yields up to the sort of unsustainable levels that triggered the Greek and other bailouts last year.

Before Sunday's summit, the Italian premier held one-on-one talks with EU president Herman Van Rompuy and another meeting with German Chancellor Angela Merkel and French President Nicolas Sarkozy.

"We have to reassure investors and reassure other states," Van Rompuy told a news conference. "Clearly, we are asking for a major effort on the part of the Italian authorities and I think they are ready to do it."

Van Rompuy said leaders would work "hand-in-hand" with Berlusconi in the coming days to make sure Rome "implements what it promised."

But at a joint press conference on Sunday, Sarkozy and Merkel were at pains to offer a clear answer when asked if Berlusconi had their confidence to fight Italy's giant debt problem.

The smiling Merkel and Sarkozy were widely displayed in Italian newspapers on Monday, with daily Il Corriere della Sera headlining on their "sarcasm" and denouncing a "slap against Italy" amid pictures of the two leaders laughing.

The doubts come despite budget cuts adopted by the Italian parliament in July and September aimed to bring the country back into balance from 2013 and reduce its debt.

European officials believe Italy has slipped back on its commitments since August, when the European Central Bank moved to support Rome by buying up its debt on the financial markets.

The irritation is all the greater given that Europe is battling to protect Italy and Spain, its third and fourth largest economies, against contagion from the debt crisis.

Date created : 2011-10-25

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