Italian shares had a volatile day of trading on Tuesday The International Monetary Fund (IMF) has asked Italy to ensure "decisive implementation" of spending cuts to reduce the country's debt.Its comments come as concerns continue that Italy may be the next country to be affected by the debt crisis in the eurozone.
The Italian government is now moving ahead with plans for an austerity budget.
The IMF said Rome may be being too optimistic about economic growth.
"[IMF] directors stressed that decisive implementation of the package is key and a number of them felt that more front-loaded spending measures would have a positive effect on market sentiments," said the IMF report.
It added that Italy's plans on tax reform lacked detail, and that the Italian government had to do more to boost the economy.
"Only sustained growth will reduce the burden of public debt." it said.
The IMF predicts that the Italian economy will grow by 1% this year, down from 1.3% in 2010.
Responding to the IMF report, Italy's Finance Minister Giulio Tremonti said: "We have to do more and we will do more in the coming hours."
Deficit targetConcern about Italy's finances saw its main share index, the FTSE MIB, fall as much as 4% at one point on Tuesday, before recovering to rise 1.2%. The index was up 0.6% in Wednesday trading.
Continue reading the main storyIf these kind of [yield] levels persist, the burden for public finances would be severe”End Quote Ignazio Visco Bank of Italy deputy director general Mr Tremonti is proposing 48bn euros ($67bn; ?42bn) in budget cuts over three years, and aims to cut the deficit to zero by 2014 from this year's 3.9% of gross domestic product.
He left a meeting of European Union finance ministers in Brussels early on Tuesday so he could continue to work on the austerity plans.
In a sign that investors are worried about Italy's financial situation, the yield on Italian 10-year bonds on Tuesday increased to 5.8%, before falling back to 5.6% on Wednesday.
Analysts say the yield remains close to levels at which the Italian government will have problems servicing its debts, which are currently more than 120% of the country's annual economic output.
The Italian central bank has confirmed this is the case.
"If these kind of [yield] levels persist, the burden for public finances would be severe," Ignazio Visco, the Bank of Italy's deputy director general, told a parliamentary hearing.
As concerns about the debt crisis in the eurozone continue, the Irish Republic had its debt-rating cut to junk status by ratings agency Moody's on Tuesday.
Moody's said there was a "growing possibility" that the country would need a second bail-out from the European Union and the IMF.
The credit rating agency's move was criticised by the European Commission.
A spokeswoman for Commission President Jose Manuel Barroso described it as "incomprehensible", adding that the timing was "questionable" because it came before the Commission published its latest review of Ireland's finances.
The Irish Republic is one of three eurozone countries that have so far needed such financial support, the other two being Greece and Portugal.
No comments:
Post a Comment