Berlusconi says Italy is ‘up to the task’ of tackling debt crisis

ITALIAN Prime Minister Silvio Berlusconi, facing record bond yields and calls for his resignation, said Italy is “up to the task” of tackling the debt crisis as its economic fundamentals are solid.

“Our banks are liquid, they passed the stress tests, and Italian families are less indebted than others among the major econ-omies,” Berlusconi told the Chamber of Deputies, the lower house of parliament.

“If to our deficit we add the savings of our families, we’d be second in the European Union in terms of solidity.”

Berlusconi, who reiterated that his government will see out the end of its term in 2013, is due to address the senate this evening in another speech on the state of Italy’s economy.

Spanish and Italian bonds rose for the first time in six days yesterday and yields eased from euro-era highs as European policymakers stepped up talks on how to prevent the debt crisis from spiralling out of control.

Confidence in Italy has been further shaken by political turmoil, with Berlusconi’s grip on power weakened by corruption allegations against him and some of his main allies.

“Markets are going to remain volatile,” said Fabio Fois, an economist at Barclays Capital in London.

“It’s good that Berlusconi talked about focusing on growth, on industrial relations and liberalising the economy as those are things the market can understand, but they are going to have to deliver.”

Berlusconi has barely spoken publicly since the sell-off of Italy accelerated last month in the run-up to an EU summit on July 21.

That meeting adopted the new aid plan for Greece and established a mechanism to aid countries facing surging borrowing costs such as Italy and Spain before they require bailouts. Opposition parties had publicly called on Berlusconi to address the nation.

After Berlusconi’s speech, the extra yield premium investors demand to hold Italy’s 10-year bond instead of German bonds narrowed to 368, after earlier reaching 391, a euro-era record.

European Commission president Jose Barroso urged governments to quickly approve a planned upgrade of the eurozone rescue fund, saying the perception that leaders haven’t found a “systemic” answer to the crisis is hurting investor sentiment.

Berlusconi said investors still “haven’t recognised the power” of the changes to the €440 billion fund announced by European leaders at the July 21 summit.

Italy’s parliament will vote to approve a new package of financial support for Greece and other indebted European countries around mid-September, a person with knowledge of the decision has claimed.

The vote will cover all changes approved at the European level to the European Financial Stability Facility, including an agreement to allow the fund to buy bonds on the secondary market and to help recapitalise banks, said the person, who declined to be identified.

Pier Luigi Bersani, leader of the main opposition Democratic Party, repeated a call for the premier to resign.

Bersani said after Berlusconi’s speech that Italy “is in big trouble” and needs a change of leadership to restore credibility to its politics and regain investor faith.

The government opposes any move to bring it down and install a temporary “technocratic” cabinet to oversee structural reforms, Angelino Alfano, head of Berlusconi’s People of Liberty party, told the Chamber.

“When Italians hear that term, they smell taxes,” said Alfano, the former justice minister.

Meanwhile, Italian finance minister Giulio Tremonti yesterday met Luxembourg Prime Minister Jean-Claude Juncker, who also heads the group of eurozone finance ministers.

“We had a long discussion visiting all the problems the euro area is facing and we’ll continue our meditation in common,” Juncker told reporters after the talks, which Tremonti called “long and fruitful”.

Picture: Silvio Berlusconi moments after he addressed the Italian parliament on the state of the economy yesterday. Picture: AP/Gregorio Borgia

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