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Letta says Italy vulnerable while 10-year bond over 3%

Premier says EIB needs to be reinforced

22 November, 12:23
Letta says Italy vulnerable while 10-year bond over 3% (see related Letta story) (ANSA) - Rome, November 22 - Premier Enrico Letta said Friday that Italy will remain vulnerable to financial turbulence while the interest rate on its 10-year bond is above 3%.

Italy risked enduring a Greek-style financial meltdown in 2011, when the rate on the 10-year-bond peaked at over 7%, with the spread between it and the German benchmark above 500 points.

Austerity polices introduced by the emergency technocrat government of Letta's predecessor, Mario Monti, reassured investors and steered Italy out of the crisis.

The interest rate on 10-year bonds is currently a little over 4%, with the spread is over 230 points, but Letta says this is not good enough.

"We will continue to experience vulnerability until we have a rate on the 10-year bond that is at least as low as 3%, until that is a reference point for the system," Letta told the assembly of Italian cooperative banks, Federcasse. He added that Italy will use its duty presidency of the European Union in the second half of next year to ensure that the EU moves to a period of promoting growth and fighting unemployment.

Rome will have more credibility in this bid thanks to its efforts to put its financial house in order, added Letta, who replaced Monti at the helm of a left-right coalition government in April to end two months of political deadlock after February's inconclusive general election.

"We have to put the season of financial rigour behind us, but the season of growth has to be based on having the accounts in order," Letta said.

"For the first time after many years, both our debt and deficit will be in decline next year," added the premier, whose government is planning to raise 10-12 billion euros in privatizations and push through a round of spending cuts to reduce debt and finance growth-stoking measures.

"We'd all like to have more money (to invest), but that would mean breaking the (EU) deficit rules". Letta also said the EU needed to bolster the European Investment Bank (EIB) as the efforts of the European Central Bank (ECB) to promote growth were insufficient on their own. "There is the risk of making a fatal mistake," Letta said.

"That would be to give all the weight to a single instrument, the ECB, even though this made it possible to calm the crisis under the leadership of an authoritative Italian, Mario Draghi. "The ECB cannot promote development. It's necessary to reinforce the EIB".