IMF urges spending cuts in Italy

13 July 2011 Last updated at 14:23 GMT 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 target

Concern 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.

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If 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.

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Don't ditch Greece, urges Darling

22 June 2011 Last updated at 10:03 GMT There have been protests in Athens against austerity measures Former chancellor Alistair Darling has said the eurozone's strongest economies need to do more to help out Greece, as it struggles with its debt crisis.

The Labour MP told the Times that the current "patch and mend" approach was "doomed to fail".

On Monday his former Labour cabinet colleague Jack Straw predicted the collapse of the euro.

The Greek government is struggling to win support for austerity measures as it seeks to avoid a debt default.

The Greek government won a critical confidence vote on Tuesday night, as thousands of people staged protest outside the Parliament building in Athens.

'Patch and mend'

It now has to persuade its MPs to back 28bn euros (?25bn) of cuts, tax rises, fiscal reforms and privatisation plans - Eurozone ministers say a 12bn euro loan, which Greece needs to pay its debts, is conditional on the legislation going through.

Mr Darling, who was UK chancellor between 2007 and 2010, told the Times it would serve no-one's interests if Greece was forced out of the euro but added: "If the eurozone carries on with its patch-and-mend approach, it is doomed to fail."

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The richer, stronger economies who have benefited from the euro should help out their weaker neighbours”

End Quote Alistair Darling Former UK chancellor He said the eurozone could not survive in its present form if its members continued with the same approach.

It could "carry on treating Greece, Portugal and Ireland as bad boys" imposing "punitive" conditions that would not work - or it could "face the fact that, as with any other single currency, the stronger parts of the economy have to help the weaker parts to make the reforms they need".

While Greece had to do its bit, "a reparation-style austerity programme" would not work, he said.

If Greece defaults on its debts it would mean "massive losses for many of Europe's banks" and if it were forced out of the Eurozone there was a risk of "chaos in the markets".

He added: "Instead the richer, stronger economies who have benefited from the euro should help out their weaker neighbours. After all, that's the approach that the IMF has applied to other countries in distress.

"That means making the political argument; If they want a single currency, they've got to make it work. The consequences of failure would be profound for years to come."

'Slow death'

The Conservative backbencher John Redwood also said the richer eurozone countries should do more to help Greece - or should allow it to leave the euro.

He told the BBC: "A single currency can only work if you have a single country to back it up. The rule is that when a part struggles you send them more money, you pay their benefits bill or you send them more money for their council or whatever.

"That's what we do within the sterling currency zone within the United Kingdom. The rich parts help the poor parts. The rich parts have got to help the poor parts in the euro area and they're trying to do it on the cheap and they're causing a lot of pain and suffering as a result."

Earlier this week, former foreign secretary Jack Straw told a Commons debate the euro was facing a "slow death" and the 17 member eurozone "cannot last" in its current form.

On Tuesday Prime Minister David Cameron said the eurozone would not be allowed to collapse - but stressed the UK would not take part directly in any EU rescue package for Greece, as it is not a member of the single currency.

However, as a member of the International Monetary Fund, the UK could be liable for a share of loan guarantees to Greece and UK banks have an estimated ?2.4bn in investments tied up there.

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Huhne urges energy supply changes

12 June 2011 Last updated at 04:45 GMT Scottish Power's rise in prices could be followed by other major suppliers Consumers should vote with their feet and switch to a different supplier if their power company raises its charges, Energy Secretary Chris Huhne has said.

In an interview with the Observer, Mr Huhne said people did not have to take price increases "lying down".

He urged people to hit firms "where it hurts" by finding a cheaper supplier.

Scottish Power has this week announced big rises in gas and electricity prices and there are fears the other five major suppliers will follow suit.

Mr Huhne said: "Consumers don't have to take price increases lying down. If an energy company hits you with a price increase, you can hit them back where it hurts - by shopping around and voting with your feet."

Mr Huhne is expected to announce new measures this week to make it easier for smaller companies to compete in the energy market.

He said: "Right now, only one in five people switch suppliers. I want to see more switching, more competition and more companies in the market.

"The big six only have a few minnows snapping at them, who are kept artificially small. By scrapping red tape for small players they can become serious challengers and help keep bills down."

'Deep concern'

On Tuesday Scottish Power revealed price increases of 19% for gas and 10% for electricity from 1 August, affecting 2.4 million households in the UK.

The company blamed the rises on a sharp rise in the wholesale cost of gas.

Scottish Finance Secretary John Swinney has called for talks with the supplier over the move.

He said: "I am deeply concerned at the scale of Scottish Power's price increases and I am seeking an urgent meeting to hear why they think increases of this scale are justified.

"Any fuel price rises have an impact - yet these increases will leave many households, in particular vulnerable consumers, in real, real difficulty."

A spokesman for Scottish Power said the company always co-operated with parliamentary requests and it looked forward to the meeting with Mr Swinney.

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