Silvio Berlusconi says Italy banks 'solid and solvent'

 

Prime Minister Silvio Berlusconi says Italy is "economically and financially solid"

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Italian Prime Minister Silvio Berlusconi has said the country will not be drawn into the debt crisis engulfing Europe.

Addressing parliament on Wednesday, he said Italy's banks were "solid and solvent" and the economy was "solid".

His comments come after heavy losses on the Milan stock market and a sharp rise in yields on Italian bonds.

The eurozone's third largest economy is about to introduce a 43bn-euro ($62bn; £38bn) austerity package.

Mr Berlusconi said Italy had "solid economic foundations" and called the recent fall in bond yields a "crisis of faith in the international markets".

Italy has so far managed to avoid sovereign debt problems, despite having one of the highest debt-to-GDP ratios in the eurozone at 120%.

But the economy is twice as big as Greece, Portugal and the Irish Republic's combined, so a bailout would probably be unaffordable.

Mr Berlusconi has been criticised for his silence on Italy's economic problems, amid concerns about whether the government would introduce the full austerity package.

He told MPs that the government would need to approve "as soon as possible" fiscal reforms in order to have "a tax regime that is more favourable for families, workers and businesses".

Mr Berlusconi also underlined the need for labour-market reforms and competition. He said the crisis "should be confronted with consistency and confidence, without bowing to the nervousness of the markets".

Dominoes

But Michael Hewson, an analyst at CMC Markets, doubted whether Mr Berlusconi's speech, made after European stock markets had closed, would calm investors' nerves.

Analysis

Silvio Berlusconi quite rightly said he must not make the financial markets nervous. But it was very significant that he delayed his speech by two-and-a-half hours so that markets would be closed by the time he spoke.

He said the banks were solvent and the economy was solid; that Italy was in a more favourable situation than many other European Union members.

This is the sort of language he has used before. But quite frankly many Italians do not believe him. And we will have to see what the markets make of it when they re-open.

Basically, the tenor of Mr Berlusconi's remarks was: "What is all the fuss about? We have a flourishing economy."

Well, this is not true. Italy has almost zero growth, big productivity problems, and prospects for the future are dim because it is going to have to pay more to re-finance its very heavy public debt.

So I do not think it was a very convincing speech as far as many ordinary Italians are concerned, and I do not think it is going to convince Mr Berlusconi's European partners.

He told the BBC: "This is not about Italy. It is about the future of the euro. As soon as one domino falls, the markets move on to the next one.

"Nor is it about Italy's banks. It's about the government's debt and the only reason the banks are involved is because of their exposure to that debt," he added.

Emma Bonino, vice-president of Italy's Senate and leader of the opposition Radical Party, told the BBC: "For the first time [Mr Berlusconi] said we are facing a crisis - which is something.

"But the real point is the lack of growth - and in the whole 30-minute speech he didn't announce any more measures to promote growth."

Earlier in the day, European Commission President Jose Manuel Barroso described the bond markets' treatment of Italy and Spain as "a cause of deep concern".

Yields on Spanish and Italian bonds have hit euro-era records this week, meaning that it would cost both countries' governments more to borrow money.

The Italian 10-year bond was yielding 6.02%, while the Spanish 10-year bond was at 6.14%.

A bond yield above 6% is considered unsustainable in the long run.

"The upward march in Spanish and Italian bond yields is evidence of the relentlessness of the sovereign debt crisis," said Jane Foley, an analyst at Rabobank International.

 

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  • rate this
    +2

    Comment number 44.

    Italy'banks are solid and solvent ??? Unfortunately all country's with serious debt problems always say that to distract attention from themselves. Not long now before we see the problem getting worse. Also, we in the UK should stop burrying our heads and thinking we're alright. We're in deep trouble and things will get worse here. We haven't got maunfacturing anymore to get us out of our mess.

  • rate this
    +1

    Comment number 41.

    The solution to speculation in the Eurozone is not to ditch the Euro, but to ditch the speculators who create nothing but money for themselves and misery for everyone else. Maybe there is a morality other than mere greed. Personally I would outlaw as much of the speculation as is feasible. Economists amongst you will laugh out loud, but we need leaders more than economists. (Berlusconi excepted)

  • rate this
    0

    Comment number 38.

    I'd expect to see further cuts in the Italian budget but squaring that with the need to get growth is the conundrum. Still, with everyone bullish on gold, extreme negative sentiment on the markets a 9 day successive fall on the Dow aren't all these factors perfect contrary indicators for a market revival. Plus the ECB will be buying bonds anytime soon.

  • rate this
    +3

    Comment number 33.

    We are making things worse by trying to prolong the inevitable. Take the fallout now and reduce the pain longer term.

  • rate this
    +2

    Comment number 21.

    A single currency will work if, and only if, the stronger exporting economies constantly transfer currency to the weaker importing economies.

    Otherwise debt accumulates somewhere in the economically weaker countries - it may be private, public, banks, government. It’s nothing to do with being totally dishonest, corrupt, or fiscally incompetent. Though those qualities don’t help.

 
 

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