Italy vows to stick to budget plan to cut debt

ISTANBUL - Anatolia News Agency

Italian PM Mario Monti’s bitter pills to adjust the budget are facing large anger. REUTERS Photo

Italy vowed yesterday to balance the budget by next year despite a deepening recession, as market jitters over Spain’s fragile public finances aggravated fears of a new phase in the eurozone debt crisis.

Yields on Spanish 10-year bonds have climbed over 6 percent, nearing levels that caused arket panic when Italy was in the same position last year. Italian 10-year yields stood at almost 5.6 percent yesterday.

With concerns about a return of the debt crisis resurfacing in the wake of Spain’s budget difficulties, borrowing costs for the weaker eurozone member states including Italy, the zone’s third biggest economy, have jumped towards potentially dangerous levels.

Prime Minister Mario Monti has faced growing opposition at home to his economic reforms since he was appointed in November.

As the psychological boost from massive injections of cheap cash by the European Central Bank earlier this year has faded and the sustainability of Spanish public finances is questioned, the eurozone has been thrust back on to the agenda of International Monetary Fund meetings this week.

Yesterday, Italian Economy Ministry Undersecretary Gianfranco Polillo repeated that Rome was set to lower the government’s forecast for 2012 output, which now predicts a 0.4 percent contraction. He said the new forecast would probably come in better than the European Commission’s forecast of a 1.3 percent contraction. Officials said the lower forecast should not affect the pledge of a balanced budget in 2013 made by former Premier Silvio Berlusconi and taken on by Monti’s technocrat government.