Merkel presses Italy on €40bn austerity deal

Italy's coalition government is coming under concerted pressure at home and abroad to calm market nerves and push its €40bn austerity package through parliament without delay.

Angela Merkel, Germany's chancellor, said she had spoken to Silvio Berlusconi, the Italian prime minister about his budget programme by telephone on Sunday.


"Italy must itself send an important signal by agreeing on a budget that meets the need for frugality and consolidation," she said in Berlin. "I have full confidence that the Italian government will pass exactly this kind of budget."

Her sense of urgency was echoed by Emma Marcegaglia, head of Italy's Confindustria business lobby, who said the budget's main numbers should remain intact but that parliament should introduce measures to promote economic liberalisation and growth.

In Rome a Senate committee was due to start considering the budget on Monday. The government hopes to see the package pass through the two houses of parliament, where it has a slim majority, before the summer recess starts in early August.

Opposition parties are demanding a full debate rather than shortened procedures, but are unlikely to block the budget, which sets out to eliminate Italy's budget deficit by 2014.

Wolfgang Schäuble, Germany's finance minister, said Italy was "on the right path" and that the budget draft presented by Giulio Tremonti, finance minister, was "very convincing".

Nonetheless, jittery debt and stock markets picked up where they had left off on Friday, pushing the Yield gap between Italian and German bonds to new euro-era highs and punishing Italian banking shares. Within the space of five trading days, the Yield on 10-year Italian treasuries has risen to 5.56 per cent from just below 5 per cent.

While the cost of financing Italy's €1,800bn debt mountain soared on international markets on Monday, Mr Berlusconi, a billionaire media entrepreneur, was reported to be at home in Milan dealing with financial troubles involving his family's Fininvest holding company.

A Milan appeals court on Saturday ordered Fininvest to pay €560m in compensation to Carlo De Benedetti's CIR, a media rival. The damages arose from earlier court rulings that found Fininvest's lawyer guilty of bribing a judge in 1991 to give control of the Mondadori publishing house to Fininvest rather than CIR.

A spokesman for Mr Berlusconi confirmed that he was at home in Milan and said it was "possible" that he had met his family, as he usually does on Mondays. Marina, his eldest daughter, is chairman of Fininvest, while son Pier Silvio is on the board.

Mr Berlusconi was busy dealing with the Italian and European economic dossier, his spokesman said.

The prime minister had tried to introduce into the budget legislation a clause that would have allowed Fininvest to delay payment of damages to CIR. After a political furore, Mr Berlusconi withdrew the controversial clause, although he later defended its merit and said he might reintroduce it.

Mr Tremonti was in danger of being fired by Mr Berlusconi, Il Giornale, a Milan daily owned by the Berlusconi family, reported last Friday, presenting the finance minister as an old-fashioned "socialist" who had blocked the prime minister's reforms.

Reports since then have stressed the need for party and national unity while under market fire.


http://www.ft.com/intl/cms/s/0/364b4814-abd0-11e0-945..