Italy wobbled on financial markets yesterday after debt warnings from Moody’s ratings agency and Eurogroup chief Jean-Claude Juncker, while the Italian government reels from two stinging poll defeats.
The benchmark index on the Milan stock exchange closed down more than two per cent, with investor worries hitting bank stocks in particular.
Market pressure has forced the government to speed up preparations for a €40-billion austerity plan intended to bring its public deficit to just 0.2 per cent of gross domestic product (GDP) by 2014.
“The context could not be more difficult,” said Marco Valli, an economist at UniCredit, Italy’s largest bank. He said investors needed “credible objectives” from Economy Minister Giulio Tremonti as Italy’s economy struggles.
Eurogroup head Jean-Claude Juncker warned on Saturday that the euro crisis hitting Greece and others could affect Italy and Belgium, saying in an interview with a German daily: “We are playing with fire.”
Mr Juncker, Prime Minister of Luxembourg and leader of the eurozone finance ministers, told Suddeutsche Zeitung that the crisis could also hit, “due to their high levels of debt, Belgium and Italy, even before Spain.”
Italy’s centre-right government has committed to reducing its public debt and deficit levels to meet European Union commitments within a few years.
But a round of €25 billion in austerity cuts last year sparked social tensions and the government is on the backfoot after crushing poll defeats.
Local elections in May saw the left take control of Prime Minister Silvio Berlusconi’s fiefdom in Milan and he was beaten again on June 14 when Italians voted to abolish laws on nuclear power and legal immunity for the premier.
As shares dropped yesterday, Emma Marcegaglia, head of the Italian employers’ federation Confindustria, called for an immediate overhaul of the tax system and austerity cuts to restore confidence on financial markets.
“At this sensitive moment... it’s essential to approve the €40 billion austerity plan as soon as possible,” Ms Marcegaglia said.
“At the same time there need to be a series of measures to aid growth, like tax reform including a lowering of taxes on businesses,” she added.
One factor worrying investors at the moment is political uncertainty due to rising tensions between Mr Berlusconi’s People of Freedom party and its powerful coalition partner, the Northern League party, experts said.
Northern League leader Umberto Bossi called for tax breaks on Sunday, saying: “People are more important than markets.”
There was more bad news on the economy yesterday as official data showed industrial orders plunged by 6.4 per cent in April from March. Orders had gone up eight per cent in March but were dragged down by a sharp drop in foreign orders and a fall for the electronics sector.
The Italian economy grew by just 0.1 per cent in the first three months of the year and the country has averaged very low growth for the past decade.