Sluggish Italy may need a bailout too

Tim Wallace
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ITALY is still at risk and could require a bailout in the near future, economists warned yesterday, as its economy remains sluggish and government borrowing costs are still dangerously high.

Ten-year borrowing costs stood at 5.77 per cent when markets closed on Friday, below the peaks of above seven per cent seen in December and January, but still far above the 3.7 per cent seen in late 2010.

Such high yields will continue to take their toll on the government’s finances, and steadily worsen the country’s situation.

“With current market yields Italy’s fiscal position is probably on an unsustainable long-term path – in the sense that the debt-to-GDP ratio is set to rise for an extended period,” warned Citi economist Michael Saunders.

“Moreover, the situation could rapidly become critical, because the country is highly vulnerable if the sovereign debt crisis persists or intensifies. As we expect a further escalation of the crisis, we believe Italy will probably need outside help at some point.”

Prime Minister Mario Monti has repeatedly called for the Eurozone bailout fund, the European Stability Mechanism, to be increased to reassure markets and so lower borrowing costs.