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| The Complications of the European Economic Crisis |
| (2011-11-10) |
| Last updated: 2011-11-14 14:01 EET |
Silvio Berlusconi’s resignation as head of the government in Rome is not seen as sufficient guarantee to solve the financial problems of Italy, a country that has accumulated an enormous amount of debt. The authorities must prove that they are also implementing the austerity measures agreed with the European Union.
Due to the inability of the government in Rome to implement the necessary measures and reforms to regain its credibility, Italy, which is the third biggest economy in the euro zone, is now perceived as the future victim of the debt crisis. In the last month alone, Italy’s rating has been downgraded by all the three leading rating agencies, Standard and Poor’s, Moody’s and Fitch, as a result of a slowdown of economic growth. The debt accumulated by Italy has reached 1,900 billion euros, which accounts for about 120% of the GDP, while the Italian bond yield has exceeded 7%, a level considered unsustainable by experts.
In other words, the country’s debt cannot be covered because of the high interest rate on loans. Recent history shows that other European states, such as Greece, Ireland and Portugal, asked for emergency financial assistance the moment they reached this level. To solve this complicated situation, the authorities in Rome drew up an austerity plan, while the country’s president Giorgio Napolitano gave assurances that the measures agreed with the European Union would be approved in a matter of days.
The European Commission has asked the Italian government to provide accurate information about the reform timetable and how these reforms are meant to help reduce the budget deficit. A monitoring mission made up of International Monetary Fund and European Union experts has been sent to Rome to that end. One day before the arrival of the expert team, Prime Minister Silvio Berlusconi made public his readiness to resign, but only after next year’s budget bill is adopted.
Berlusconi, whose popularity ratings dropped to 22%, made this announcement after losing the absolute majority in the Chamber of Deputies on Tuesday, just as he had managed to get the new economic measures agreed with the European Union through Parliament. The resignation of Berlusconi, a controversial and unconventional prime minister and the leader of the Italian right wing for 17 years, will soon be followed by talks with the representatives of the main political parties in order to form a new government, the president said.
Napolitano did not rule out the possibility of early elections, which would be held as soon as possible to avoid an extended period of government and parliament inactivity. The message of the Italian president has not, however, appeared to allay investors’ fears. Neither did Berlusconi’s resignation manage to calm down the situation on international markets. The Milan stock market closed down 3.78% on Wednesday, while the markets in Paris, Frankfurt, London, Madrid and Athens also registered losses, albeit smaller.
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