European Central Bank President
Mario Draghi said Friday that countries with a high public debt
should not increase it further and should respect the EU's
budget rules.
"Lack of fiscal consolidation in high-debt countries
increases their vulnerability to shocks, whether those shocks
are autonomously produced by questioning the rules of EMU's
architecture, or are imported through financial contagion,"
Draghi said in a speech.
"So far, the rise in sovereign spreads has been mostly
restricted to the first case and contagion across countries has
been limited.
"Such developments feed into tighter bank lending conditions
for the real economy.
"To date, though some repricing in bank lending is happening
where the rise in spreads has been more significant, overall
bank funding costs remain near historical lows in all large
countries, thanks to a steady deposit base.
"To protect their households and firms from rising interest
rates, high-debt countries should not increase their debt even
further and all countries should respect the rules of the
Union".
The Italian government is currently in a tussle with the
European Commission over its plan to run a deficit of 2.4% next
year.
The Commission may open an infringement procedure on the
grounds that the budget plan breaches the Stability and Growth
Pact.
The government has said an expansive budget is needed to
finance key pledges and boost sluggish growth.
Italy has a public debt of over two trillion euros, more than
130% of GDP.
The spread on Italian State bonds has increase significantly
in recent months.
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