European leaders are increasing pressure on Italian Prime Minister Silvio Berlusconi to specify how he plans to reach budget-reduction targets. Italy needs to back up commitments with “specific actions” and come up with “clear timing,” said European Commission spokesman Amadeu Altafah at a meeting in Brussels today after a meeting of Italy’s cabinet yesterday failed to announce steps to spur economic growth.
European leaders are pushing Italy to shore up its finances in order to prevent the debt crisis from overcoming the euro zone’s third-biggest economy, and putting France and Germany in danger. European policy makers are struggling to convince markets they have a plan to combat the economic crisis.
That plan “is likely to represent the turn of a corner in the European debt crisis, but it will not be a ‘one strike, the crisis is over’ sort of thing, simply because there is no such strike available to policymakers,” said Erik Nielsen, global chief economist at UniCredit SpA. “The key is to convince the market that policy makers can and will do what’s necessary, and here the Europeans have a more complicated task than most others.”
The plan might include expanding the reach of the 440 billion-euro European Financial Stability Facility by turning it into a bond insurer and giving it the ability to raise outside funds. It might also include a strategy for recapitalizing banks, helping them build capital cushions to protect against an economic downturn. However, at a summit meeting yesterday, leaders decided against restructuring Greek debt, instead hoping to entice bondholders to accept losses to help restore the country’s finances. They also ruled out using European Central Bank funds for the rescue facility.
In Rome yesterday, Berlusconi’s Cabinet failed to agree on steps to spur economic growth, with a meeting concluding last night with no resolution to the question as to whether to raise the retirement age, which met opposition by the Northern League, Berlusconi’s key ally.
Italy’s debt totals more than $2 trillion — that’s almost 120% of its annual gross domestic product. The ECB began buying Italian bonds two months ago in order to keep down borrowing costs as yields surged.