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Italy’s borrowing costs 'becoming unsustainable'

Text by News Wires

Latest update : 2011-11-10

Italy’s economic crisis sparked further fears for the eurozone Thursday as the EU's economic affair chief, Olli Rehn (pictured), warned that the country's borrowing costs are reaching near unsustainable levels, meaning a bailout would be impossible.

AP – Italy's soaring borrowing costs threaten to hit its economy next year, making it crucial for political stability to be restored and budget cuts enacted, the EU's economic affairs chief said on Thursday.

"While in the very short term the impact on the sovereign is not as so dramatic, relatively soon, towards next year and the medium term, this would have a significant impact on the financing conditions and thus also growth of the real economy," said EU Economic Affairs Comissioner Olli Rehn.

"And therefore ... the first and foremost thing is to restore political stability and capacity of decision making which is currently in the process in Italy," Rehn said.

"In parallel, the second equally important thing is to take immediate action to meet the fiscal targets and take decisions on structural reforms that can boost sustainable growth and job creation which is so much needed in Italy."

Rehn presented a bleak economic outlook for the eurozone and Italy, projecting the Italian economy forecast to virtually stagnate at 0.1 percent in 2012 while the 17-nation single currency area risks a new recession.

With the country's rates surging above a dangerous 7.0 percent, Italian Prime Minister Silvio Berlusconi has pledged to step down after parliament passes key reforms.

The commission has sent auditors to Italy to help the country implement the measures while the IMF is deploying its own team to work in parallel.

Date created : 2011-11-10

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