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Italy struggles to avoid debt contagion


Italy struggles to avoid debt contagion


Italy is now in the eye of the storm of Europe’s debt crisis.

Shares in the country’s banks dived again on Monday after the results of European stress tests failed to allay fears over their prospects, adding to growing worries over the country’s public finances.

The main Milan share index fell three percent, much more than the region’s other bourses.

The markets were not calmed by the 48 billion euro austerity package rushed through parliament and the newspapers are full of stories about politicians perks, contrasting them with the cuts being inflicted on ordinary people.

All this is being played out against a background of political instability with Prime Minister Silvio Berlusconi recently trying to undermine his finance minister.

There is now increasing talk that Berlusconi may be forced to step down before his term ends in 2013, possibly making way for a so-called “technical government” which could steer Italy into calmer waters.

How can Italy avoid the debt crisis

With a debt crisis in full swing, contagion among the euro zone countries, the US being on the verge of default and the risk of the euro collapsing, euronews’ Annibale Fracasso spoke to Economics Professor Tito Boeri.
“The parliamentary vote on the austerity package was not enough to reverse the considerable worries about Italy’s finances. So, Professor Boeri, to what extent was the big sell-off on the Milan Stock Exchange linked to the political fragility of Silvio Berlusconi’s government?”
Professor Tito Boeri: 
“Markets and investors do not trust our country. They are afraid that it does not have the ability to carry forward the healing process which it has committed to at the European level. This all creates a negative climate and it’s now very difficult to reverse this: you have to send very strong signals, and unfortunately I fear that this austerity package is not enough to counter the market speculation.”
“Professor Boeri, you talk about a crisis of credibility affecting all of Italy’s politicians. At this point, is an early election the only solution?”
Professor Tito Boeri:   
“In this context, we must give some signs of political change I’m not saying hold new elections, which would create a lot of instability, but I’m thinking of direct intervention with the creation of a (new) government of national solidarity, with strong support from across the political spectrum, including some from the current majority and also from the opposition, to move forward a reform programme for economic growth. This could give a strong signal that would be appreciated by the markets.”
“Professor Boeri, how did the European Union get into this black hole?”
Professor Tito Boeri: 
“I believe that Europe politicians should take notice of the fact that there are many problems between countries and, in cases like that of Greece, to make sure there is an orderly restructuring of Greek debt. Creating a monetary union at the European level without creating a fiscal union is very dangerous because if you don’t there is always a strong risk that you will go back.”

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