Berlusconi Holds Economic Talks Under Market Pressure
Italy's leading trade unions and the main employers group presented Prime Minister Silvio Berlusconi with requests to boost economic growth at talks Thursday aimed at shoring up market confidence.
No details of the five-point plan were immediately available but Italy's main economic players last month asked for "a pact for growth" to fend off pressure from investors worried about high debt in the Eurozone’s third largest economy.
"We need to take things up a gear," Raffaele Bonanni, leader of the Cisl trade union, told reporters ahead of the start of the talks.
The head of the Uil union, Luigi Angeletti, said he would tell the government that "the first thing to do for growth is to make investments."
Berlusconi on Wednesday told parliament that there would be "an immediate action plan" for growth but he did not give any concrete details and was heavily criticized by commentators for failing to calm investors.
Stefano Folli, a columnist for Il Sole 24 Ore business daily, wrote that the speech was "a missed opportunity" and did not reflect "the urgency of reality.
"There was too much easy optimism, too many generic references to reforms (those eternal reforms that are always evoked but never implemented). In two words, too much rhetoric and not enough pathos," Folli said in an editorial.
Fabio Fois, an economist at British investment bank Barclays Capital, said the speech "had nothing specific about how to change market sentiment."
The Center for Economics and Business Research, a think tank in London, warned that Italy would likely default on its debt if it cannot boost its growth rate.
It said Italy's debt would rise from 128 percent of Gross Domestic Product to 150 percent by 2017 if its borrowing costs stay above the current 6.0 percent paid on its 10-year bonds and growth remains stagnant.
The Italian economy grew just 0.1 percent in the first quarter of the year.
"Even if the cost of borrowing goes back down to 4.0 percent, their growth rate is so anemic that we see the debt GDP ratio remaining at 123 percent in 2018," the CEBR said.
The stock market in Milan opened 1.10 percent up but quickly dropped into negative territory ahead of a keenly awaited meeting of the European Central Bank which investors hope will announce a resumption of government bond purchases so as to ease the pressure from the markets.
Despite Italy's adoption last month of sweeping austerity measures, many investors are still concerned about its paltry growth and enormous public debt -- one of the highest levels in the world.
Tensions within Berlusconi's center-right coalition and recent setbacks for the 74-year-old prime ministers have also put investors on edge.
Italian bonds have been particularly hard hit by the market nerves but the risk premium was down slightly early on Thursday, with the rate on 10-year bonds decreasing to 5.986 percent -- below the key threshold of 6.0 percent.
Cyril Regnat, a bond strategist at French bank Natixis, said the decline was due to "the willingness of European authorities to act" -- following a call for action by European Commission President Jose Manuel Barroso.
"But unfortunately we can't expect a miracle," he said.
Source: Agence France Presse
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