Italy Says It Will Balance Its Budget by 2013

Posted August 5th, 2011 at 3:30 pm (UTC-5)
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With its borrowing costs sharply increasing, Italy says it will balance its budget by 2013, a year earlier than originally planned.

Italian Prime Silvio Berlusconi made the pledge Friday night at a hastily called press conference, saying the government would also seek to win approval for a constitutional amendment requiring it to balance its annual budget.

Mr. Berlusconi's announcement came at the end of a week in which the interest rates on the country's bonds jumped markedly, increasing investor fears that Italy could be forced to join Greece, Ireland and Portugal in needing to secure international assistance to deal with its debt woes.

European stock indexes fell sharply Friday amid worries that the debt-ridden governments in both Italy and Spain, with Europe's third and fourth largest economies, posed a threat to the euro, the common currency employed by 17 nations on the continent.

Mr. Berlusconi's announcement came after the European markets ended trading for the week, but U.S. stock indexes turned losses into gains upon hearing his pledge.

The Italian leader said that the finance ministers of the world's leading economies would meet “within days” to discuss the global economy and fears that it might be slipping into another downturn.

Earlier, Europe's economic commissioner predicted that neither Italy nor Spain would need need an international bailout.

European Union Economic Affairs Commissioner Olli Rehn said, however, that both countries must strictly implement austerity measures they have adopted to raise taxes and cut spending.

Both countries have faced record borrowing costs this week to finance their government operations as investor fears mounted that they would be the next countries to need bailouts. Interest rates on government bonds increase when investors worry that the debts might not be repaid, which in turn makes it more costly for governments to borrow money.

Rehn said the EU is working “night and day” to craft a plan to stem the continent's debt contagion. He said details of a financing plan approved last month by European leaders would be set “in weeks, not months.”

Rehn said investors should not underestimate “the political will” of European leaders to defend the euro.