ITALY:ITALIAN PRIME minister Silvio Berlusconi is coming under mounting pressure from Europe to take command of his ailing public finances after a dressing down in Brussels by German chancellor Angela Merkel and French president Nicolas Sarkozy.
With the European Central Bank already in the market for Italian sovereign bonds, the focus on Mr Berlusconi reflects fear in Europe that Rome might need special aid from the euro zone bailout fund to complete a looming recapitalisation of Italian banks.
In addition to a pre-summit meeting with Dr Merkel and Mr Sarkozy, Mr Berlusconi was also summoned to meet European Council president Herman Van Rompuy and European Commission chief José Manuel Barroso before other EU leaders gathered to discuss the debt crisis.
“Italy has great economic strength, but Italy does also have a very high level of debt and that has to be reduced in a credible way in the years ahead,” Dr Merkel told reporters in a mid-summit briefing.
Referring to Europe’s effort to boost banks and the bailout fund, Dr Merkel said confidence in the country “won’t result merely from a firewall”. At issue in the talks was the need for Italy to pursue policies “orientated towards growth and reducing indebtedness. Both have to go hand in hand,” she said.
The chancellor described the talks as a “conversation between friends” with “a great and important partner for the euro area”, saying Mr Berlusconi “is our interlocutor and obviously we do have confidence in him”.
However, sources briefed on the pre-summit talks said the Italian leader was left in no doubt of the need to swiftly execute a €54 billion austerity programme.
Mr Berlusconi reluctantly embarked on the plan in the face of pressure from the ECB, but his government has wavered over the detailed elements of the taxation and spending measures.
The exchanges in Brussels come as the prime minister weather the “bunga bunga” sex scandal, an affair which has seriously undermined Mr Berlusconi in the eyes of his European counterparts.
As a result, there are doubts in Europe about his government’s willingness hold the line on the austerity drive and to tackle badly-need structural reforms.
Although Spain has been in the firing line of the debt crisis for more than a year, senior European figures now speak of Italy as the weakest link in the euro zone.
Italian media reports have been highlighting the comments of an unnamed diplomat who suggested that Mr Berlusconi is “too sure of himself” and “lacks credibility” in the drive to guide Italy through the euro zone crisis.
When Mr Sarkozy was asked whether he had confidence in the Italian government to carry out economic reforms, he said he had confidence in the country’s authorities generally.
“Let’s trust the sense of responsibility of the Italian authorities as a whole,” Mr Sarkozy said.
When he arrived yesterday’s the summit, the prime minister delivered a quintessential Berlusconi reply to the question as to whether he would pass the “test” set by the European Council. “I’ve never failed an exam in my life,” he declared.
Italy’s debt load – at 118 per cent of gross domestic product – is one of the world’s largest.
Dr Merkel had already expressed concern about Italy in a speech in Germany on Saturday.
If Italy’s debt remained close to 120 percent of GDP, she said, “it won’t matter how high the protective wall is because it won’t help win back the markets’ confidence”.
In Rome and in Brussels yesterday, the focus on Mr Berlusconi prompted officials to recall phone-tap transcripts in which he apparently made less-than-diplomatic comments about the chancellor and Mr Sarkozy’s Italian wife, Carla Bruni-Sarkozy.
EURO CRISIS: IN NUMBERS
€440 BILLION: the bailout fund available to member states in crisis, including Ireland, through the European Financial Stability Fund.
€1 TRILLION: the scale of the fund that EU leaders have been talking about this weekend.
€2 TRILLION: the amount that many experts suggest is required to provide the “firepower” to deal decisively with the crisis.
6: euro zone countries with triple A rating.
€100 BILLION: the amount of fresh capital required for banks exposed to Greek sovereign debt.
13: the number of summits held by EU leaders over past 21 months.
1,826: the number of journalists accredited to cover the summit.
€109 BILLION: the amount the EU- IMF troika agreed to fund Greece in the second bailout in July.
€444 BILLION: the amount of the possible Greek shortfall on its debt repayments by the end of the decade as it continues to fail in meeting its obligations, according to a report prepared for the troika.
21 PER CENT: the amount of the haircut agreed by banks and other private investors in Green repayments on its sovereign debt.
60 PER CENT: the haircut that may be required to be applied by banks and private investors to limit the Greek bailout to €109 billion.
50 PER CENT: the figure for the haircut that seemed most likely to emerge from the summit last night.
€66 BILLION: the amount that was expected to be raised by Greek privatisation programmes when it was announced.
€46 BILLION: the maximum amount now expected to be raised through the sale of Greek state assets and companies.
€1.9 BILLION: the size of the bond market of Italy, which along with Spain is the country now considered to be most vulnerable to the “contagion” effect. HARRY McGEE