In Italy the outgoing government of technocrat prime minister Mario Monti has revealed it is going to pump 40 billion euros into the recession-hit economy over the two years which it will have to borrow, so raising the deficit.
Economy Minister Vittorio Grilli said: “We will increase debt by 20 billion euros in 2013 and 20 billion euros in 2014.”
He told a news conference that he hoped the injection of liquidity would help the economy recover and thus curb potential increases in the debt to GDP ratio, which last year hit an all time high of 127 percent, the second highest in the eurozone after Greece.
Grilli also unveiled a new grim new growth outlook saying that Italy’s economy will probably shrink by 1.3 percent this year, much worst than the previous forecast of 0.2 percent contraction.
Economists said they expect it would be even worse than that.
Grilli also forecast the economy would recover next year, growing by 1.3 percent
The 40 billion euros will be used to pay money currently owed by the government to private businesses for good and services.
To pay down that 40 billion euros in overdue debt to commercial suppliers, the government will have to get parliamentary approval as this will lead to higher budget deficits than previously expected.
The new deficit targets reflect Italy’s difficulties in consolidating its finances, with its debt continuing to climb despite waves of austerity measures over the last two years.
They will give some breathing space for whoever replaces Monti following an election last month that produced no clear winner but saw voters roundly reject his austerity programme.
The main parties are deadlocked over how to form a government but they all now agree that austerity has only worsened Italy’s problems and cannot be seen as a cure.