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ECB to meet amid one prediction that Italy will default

But Silvio Berlusconi insists the banks are solid and that his austerity plan will work.

Silvio Berlusconi addresses parliament on the state of the economy. His finance minister Giulio Tremonti sits beside him.
Silvio Berlusconi addresses parliament on the state of the economy. His finance minister Giulio Tremonti sits beside him.
Image: Gregorio Borgia/AP/Press Association Images

THE EUROPEAN CENTRAL Bank’s (ECB) monthly policy meeting will take place in Germany today amid concerns about the economic situations in Italy and Spain with the former the subject of one prediction that default is inevitable.

The ECB has already raised Eurozone interest rates twice this year with the current base rate standing at 1.5 per cent but slowing economic growth may mean that it decides not to increase again, according to Bloomberg.

The monthly policy meeting in Frankfurt comes amid hopes that the ECB will signal a more aggressive approach to tackling the Eurozone debt crisis which many thought had been dealt with when a second bailout for Greece was agreed just weeks ago.

The situation has become more volatile in recent days with the yields on 10-year bonds for Italy and Spain rising above six per cent, the level at which Ireland, Greece and Portugal were required to seek international assistance from the EU and IMF in the past 12 months.

But despite the market turmoil, Italian prime minister Silvio Berlusconi sought to assure his country that it was in good shape yesterday with a speech to parliament in which he insisted €70 billion austerity measures passed last month will be enough to balance the budget by 2014.

He added that the €9 billion in infrastructure projects that will get underway in the mostly poorer south and which were approved yesterday will help promote growth.

After a volatile day on markets, in which Italian borrowing rates touched a record high, Berlusconi told parliament that Italy ”has not done little” in response to the crisis “but we know there is more to do.”

He added: ”Our duty as the government is to work for the good of Italy, making the economy take off.”

But such statements come amid the worrying predictions of one British think tank, the Centre for Economics and Business Research, which says that Italy will not avoid default unless it sees a big jump in economic growth which it says is “unlikely” given the economy grew by just 0.1 per cent in the first quarter of 2011, according to BBC News.

For Spain meanwhile, the forecast is slightly more positive with the think tank adding that “there is a real chance that Spain may avoid default.”

Spain, which has also been under the market spotlight, saw its 10-year borrowing rate edged down to 6.23 per cent yesterday following Tuesday’s euro-era high of 6.45 per cent.

- additional reporting from AP

About the author:

Hugh O'Connell

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