Silvio Berlusconi defends Italy's banks as borrowing rates hit a record high

Published on Wednesday 3 August 2011 16:46

ITALIAN premier Silvio Berlusconi vowed yesterday to complete his five-year term and focus his government policies on growth to calm the market turmoil that threatens to plunge one of Europe's biggest economies into the debt crisis.

After a volatile day on markets, in which Italian borrowing rates touched a record high, Mr Berlusconi told parliament that Italy "has not done little" in response to the crisis. "But we know there is more to do."

Addressing the lower house of parliament in Rome after financial markets had closed for the day, he said Italy needs to promote competitiveness and growth.

"Our duty as the government is to work for the good of Italy, making the economy take off," he said.

Mr Berlusconi said the €70 billion in austerity measures passed last month will balance the budget by 2014, and emphasised that €9bn in new infrastructure projects, mostly in the poorer south, will help promote growth.

He emphasised that Italian banks remained solid and that investors who were pushing up Italy's borrowing rates did not recognise the country's fundamental strengths: a stable banking system, low levels of private sector indebtedness - half that of Britain - and a strong entrepreneurial spirit.

"I am speaking to you as an entrepreneur with three companies listed on the stock exchange," Mr Berlusconi said, to boos from opposition benches.

Growing market jitters have intensified opposition calls for Mr Berlusconi's resignation, with centre-left leaders claiming there was a lack of international confidence in the Italian leader. But Mr Berlusconi insisted he will stay in office until his mandate expires in 2013.

"Everyone does his own part: stability has always been the winning strategy against speculation," he said.

In his speech, Mr Berlusconi also appealed to the opposition and said: "I'm not asking for you to agree with the government programme, but I hope that we can count on your proposals and ideas to help serve the country."

However, in his reply, Pier Luigi Bersani, of the opposition Democratic Party, said: "He is from Mars. I believe this country is facing serious problems. Our country is facing growing distrust with politics, when instead a sense of civil spirit is needed.

"International distrust in Italy will also not pass - the only thing we can do is have a political change. He always talks about how well we are doing, but we have lost six percentage points in GDP."

Despite a public debt equivalent to 120 per cent of gross domestic product, Italy has until recently stood apart from the crisis thanks to a relatively modest budget deficit, high private savings and a conservative financial system.

However, concerns about the government's ability to overcome internal divisions and revive the stagnant economy have changed perceptions markedly in recent weeks, after warnings from credit rating agencies that they could cut Italy's credit rating.

Mr Berlusconi, 74, is currently embroiled in allegations that dozens of showgirls were paid to attend parties at his villa. He is facing a charge of having sex with an underage prostitute after it emerged one of the guests - Karima El Mahroug - at the parties held last year was at the time just 17 years old.

The media tycoon turned politician is also accused of abuse of office, as he allegedly used his position to secure the release of Miss El Mahroug from police custody.

Spain was also under the market spotlight yesterday, forcing Prime Minister Jose Luis Rodriguez Zapatero to delay his holiday by two days. The country's ten-year borrowing rate edged down to 6.23 per cent from Tuesday's euro-era high of 6.45 per cent.

Both countries' yields have soared in recent days, suggesting that investors are worried they may eventually need help with their debt.

Whereas both Italy and Spain could continue borrowing at their current rates, their financing costs would increase, adding to the debt pile that is the source of market worries.

European Commission president Jose Manuel Barroso said yesterday that the sell-off of Italian and Spanish bonds "reflect a growing concern among investors about the systemic capacity of the euro area to respond to the evolving crisis."