Italy flags potential for further cuts

September 10, 2011 - 9:35 AM
France Arab Uprisings Finance

Italian Finance Minister Giulio Tremonti answers reporters in his hotel during the Deauville partnership meeting in Marseille, southern France, Saturday, Sept.10, 2011. The Deauville Partnership is a multi-billion-dollar program of aid and credit to Egypt and Tunisia that was agreed at a G8 summit in Deauville last May. Rich countries and international lenders are aiming to provide $40 billion in funding for Arab nations trying to establish true democracies. (AP Photo/Lionel Cironneau)

MARSEILLE, France (AP) — Italy's finance minister said Saturday his country may have to take further austerity measures on top of massive spending cuts currently making their way through parliament.

"We have to do the inventory of the things we have done and check our progress and if needed we'll have to take further steps," Giulio Tremonti said on the sidelines of a meeting of the Group of Seven developed nations in Marseille, France.

Italy has found itself embroiled in the eurozone's debt crisis in recent weeks. The yield, or interest rate, on its 10-year bonds jumped back up to 5.4 percent Friday, amid wider turmoil on financial markets, despite massive purchases of Italian bonds in recent weeks by the European Central Bank. Buying bonds supports their prices and can take pressure of cash-strapped governments amid a market selloff.

Italy has government debt close to 120 percent of economic output — one of the highest in the eurozone — and lackluster growth. But as the third largest economy in the currency union, it is seen as too big to receive a bailout similar to those already provided to Greece, Ireland and Portugal.

With market pressures rising, and as a precondition for the ECB purchases, Italy last month promised to pass new debt-reducing measures. An austerity package that seeks to slash spending by more than €54 billion ($70 billion) over three years is set to go to parliament's lower house next week after clearing the Senate.

Tremonti said the government would also look at measures to boost economic growth amid widespread criticism that the provisions adopted so far provide little or no measures to kick-start the economy.

He said the government was discussing new steps with both the Bank of Italy and international institutions like the European Commission — the European Union's budget watchdog — and the International Monetary Fund.

The Bank of Italy warned Aug. 30 that Italy risked a period of economic stagnation, with growth estimated at being less than one percent this year and even less in 2012.