Prime Minister Silvio Berlusconi promised a comprehensive reform pact with unions and employers by September to stave off market turmoil which has threatened to drag Italy into a full-scale debt crisis. Speaking following a meeting in Rome on Thursday, Berlusconi repeated assurances the Italian economy was solid and markets which have sold off Italian bonds and bank stocks did not appreciate its fundamental strengths.
He brushed off fears about the sharp rise in Italian borrowing costs and the widening spreads between the yields on 10-year Italian bonds and their benchmark German equivalents over recent weeks. "I don't think the crisis will get worse," he told reporters. "We should not be afraid about the current level of spreads because they only affect a small part of the public debt at any moment, which overall remains at the interest rates it was placed at years ago."
Italy has been in the crosshairs of bond markets since early July as doubts have grown about the sustainability of its huge public debt and the ability of its fractious government to implement deep economic reform. Berlusconi promised a broad package of measures to revive the Italian economy, one of the most sluggish in the world over the past decade.
The planned steps will include constitutional amendments guaranteeing balanced budgets, privatisations, moves to liberalise services, cuts to bureaucracy and the cost of government and a fight against tax evasion. How far these promises can be transformed into action following years of similar unfulfilled pledges remains to be seen. Markets and business have been pressing the government for months to take clear reform steps.
"We have asked that all these issues be addressed with the necessary and extraordinary urgency that this moment requires," Emma Marcegaglia, head of employers' federation Confindustria, told reporters after the meeting. Thursday's meeting followed a speech in parliament by Berlusconi that was widely criticised by Italian media. There are growing questions over the 74-year-old premier's ability to respond to a crisis that now threatens not just Italy but the entire eurozone.
In an interview with Italian news agency ANSA, Fiat Chief Executive Sergio Marchionne, one of a small group of Italian executives with genuine international standing, said the situation in Italy was becoming intolerable. "We cannot allow this confusion to go on. We need stronger leadership to restore credibility to this country," he said.
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