Deep recession throws out Italy’s deficit plan

Tim Wallace
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ITALY’S recession will be far worse than initially thought, the government confirmed yesterday, forcing Prime Minister Mario Monti to push back his goal for balancing the budget.

Borrowing costs remained high on the announcement, with 10-year bond yields rising a touch to 5.48 per cent.

The economy is now forecast to contract 1.2 per cent this year, compared with the 0.4 per cent fall predicted back in December.

Such a sharp deterioration has hit the budget outlook – Monti had hoped to balance the budget next year, but has had to push that target back to 2014. Meanwhile European Central Bank policymaker Jens Weidmann told Spain, which is suffering under a far higher budget deficit than Italy, that it should not look to the ECB to buy its bonds.

“We shouldn’t always proclaim the end of the world if a country’s long-term interest rates temporarily go above six per cent,” Weidmann said.