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09 August 2011

WSJ: ECB puts pressure on Italy


Italy is under increasing pressure from the European Central Bank to pass growth-boosting measures, a press aimed at preventing the eurozone's third-largest economy from ushering in a dire phase of the continent's debt crisis.

ECB President Jean-Claude Trichet and his successor, Bank of Italy Governor Mario Draghi, sent a letter late last week to the Italian government calling for faster spending cuts, an overhaul of Italy's labour rules and measures to liberalise cosseted business sectors, a person familiar with the matter said Monday. Those demands by ECB officials were widely interpreted as the bank's quid pro quo for its decision, made late Sunday, that it would buy Italian bonds to prop up their prices.

On Wednesday, Italy's government will formally open talks with business groups, labour unions and political parties aimed at securing a national consensus for overhauls to save the country from the debt crisis. The talks, which will cover everything from faster budget cuts to labour-law reforms, could lead to some government decisions as early as the end of this week, an Italian official said.

Italy is now the central battlefield in Europe's struggle to contain the debt crisis, since the country is too big for the eurozone's bailout fund to rescue. Deep structural weaknesses in Italy's long-stagnant economy have led investors to doubt whether Rome can raise enough revenue in the future to pay down nearly €1.9 trillion ($2.7 trillion) in public debt, equivalent to 120 per cent of GDP. German Chancellor Angela Merkel and other eurozone leaders have also conveyed their expectations to Rome that Italy should act.

Under Prime Minister Berlusconi's recently announced plan, Italy will:

  • Make it a constitutional duty to balance budget, as in Germany.
  • Balance its budget in 2013, rather than in 2014 as previously planned.
  • Loosen labour-market regulations to encourage investment.
  • 'Liberalise all economic activities'.

Full article



© Wall Street Journal


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