ECB wants Italy to deliver on budget promises

ECB President Trichet Urged Italy to Deliver on Austerity Pledges

ECB President Trichet Urged Italy to Deliver on Austerity Pledges

Jean-Claude Trichet kept the pressure on Italy when he urged Rome to deliver on its budget promises on Saturday, saying it was important for the country to get its public finances in order to restore investors’ confidence.

The ECB President said the Italian bond has come under renewed pressure in recent days and warned the ruling centre-right government must come good on its pledge of a zero deficit budget by 2013.

“This is absolutely decisive to consolidate and reinforce the quality and the credibility of the Italian strategy and its creditworthiness,” said Mr. Trichet while addressing a conference in the north Italian town of Cernobbio.

The central bank has been issuing warning to Rome for some time, urging it to act quickly. The ECB has been buying Italian bonds over the last several months to keep yields on the country’s bonds low to ensure that borrowing costs for eurozone’s third largest economy does not spiral out of control.

The Italian parliament has proposed and abandoned controversial tax and pension reforms measures, sometimes within days, that has caused alarm in the EU and a €45.5 billion austerity measure is now stuck in political wrangling.

Giorgio Napolitano – the Italian President, backed the austerity proposals saying successive governments have failed to curb debts from being piled up and strong measures were required immediately.

“We have hesitated from resolutely and coherently addressing constraints that should have been loosened and broken from the heavy weight of accumulated public debt,” he told the Cernobbio conference.

Reflecting the urgency of the situation, yields on Italian bonds rose to 331 basis points on Friday as institutional investors preferred to buy the safer benchmark German bonds. This is the highest yield on Italian bonds since the ECB started buying them in August this year.

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