Italy’s public debt reached a record level in June, 1,973 billion euros, and the budget deficit increased over the same period of last year, largely because of the contribution to helping other countries with problems in the euro area, the Central Bank announced. According to the Central Bank, debt rose by €6.6 billion since the end of May, to €1,973 billion, representing 123% of Italy’s GDP, writes The New York Times. Relative to GDP, Italy is the second most indebted country in the euro area, after Greece.
Yields for Italy’s borrowing level reached a high level, close to 6%, despite tough austerity measures taken by the technocrat government of Prime Minister Mario Monti. Financial markets are skeptical about the ability of Italy to reduce its debt.
The economy contracted by 0.7% in the second quarter, comparing to the first three months of the year. Compared with same period of last year, GDP fell by 2.5%. The Central Bank also reported a deficit for the first half of the year, up by €1.1 billion over the same period of the last year, €47.7 billion. The increase is due to the rise of the costs for supporting euro area countries. The amount allocated for this purpose increased from €6.1 billion in first six months of last year to €16.6 billion.
Italy aims at lowering the budget deficit from 3.9% last year to 1.7% of GDP, but the Minister of Economy, Vittorio Grilli, acknowledged Sunday that the target will be missed. The official reiterated, however, that since the situation is caused by the recession, there is no need for new austerity measures.
After the recession is over, Italy could reduce the debt to GDP ratio by about 20 percentage points, through a series of measures including asset sales, spending cuts and careful management of the budget, he said.
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