WSJ: Italy faces war in economic revamp

11 July 2012

Prime Minister Mario Monti said Italy faced a "war" at home and abroad, as his government pushes to revamp the eurozone's third-biggest economy and extricate it from the region's debt crisis.

The premier's remarks at a banking conference in Rome came as allies of the premier's predecessor, Silvio Berlusconi, began clamouring for the controversial billionaire to run for office in the next election.

Mr Monti sketched a stormy picture of the social and political tensions gripping Italy. Mr Monti's government has proposed slashing spending this year by €4.5 billion, cutting public sector jobs and other public services that have long underpinned Italian society.

Political parties are already girding for the end of Mr Monti's term next spring, worried the premier's unpopular measures are fuelling a surge of public support for anti-establishment parties. Aides to Mr Berlusconi say his return to frontline politics could fire the base of a political party that has been bleeding voters ever since he withdrew from the political stage.

Mr Monti's swift appointment helped temporarily stem investor flight from Italian bonds, but recent months have seen Italy's borrowing costs resume their climb. Italian officials say the country is misunderstood abroad. Italy has maintained a tight fiscal policy in Europe; it has high levels of private household wealth; and its banks didn't require the large-scale government bailouts that occurred through most of the West. Outside Italy, however, investors continue to question how the country will pay down its €1.9 trillion debt, equivalent to 120 per cent of GDP, when its economy is contracting.

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