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EU urges Italy to do more, faster on reforms: audit document

29 November 2011, 23:01 CET
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(BRUSSELS) - The European Commission urged Italy to launch more economic reforms and act faster to keep Rome at bay from the eurozone debt crisis, in a report by EU auditors seen by AFP on Tuesday.

"Italy must quickly step up to the formidable challenge it is facing," the EU's executive arm said in the report drafted after a mission to Rome and delivered to eurozone finance ministers meeting in Brussels on Tuesday.

"To be credible, the agenda should be ambitious, overarching, but also detailed and time-bound," the document said. "To help reverse market mood, the key reforms should be frontloaded (moved forward)."

On a day that Italy's borrowing rates reached a record level, breaking the dangerous 7.0 percent threshold, Prime Minister Mario Monti was to present his reform plans to the eurozone finance chiefs.

The commission said "additional steps are necessary to secure the announced deficit targets," and "additional measures are also required to rekindle growth."

It called for "buffers" to close a budgetary gap between Italy's 2012 deficit target of 1.6 percent of gross domestic product (GDP), compared to the commission's most recent updated forecast, which tips a 2.3 percent deficit owing to an expected recession.

Italian daily La Repubblica reported that Italy would need to find 11 billion euros next year to plug the hole.

"While Italy can weather through a short-lived debt market turbulence, the risks of a full-blown sovereign liquidity crisis can increase rapidly in the absence of a determined policy response," the report continued.

The market turbulence does, though, carry real dangers, the report by euro commissioner Olli Rehn's services said, warning that "persistently high interest rates increase the risk of a self-fulfilling 'run' from Italy's sovereign debt."

In that event, "a liquidity crisis could then turn into a solvency crisis, whose repercussions for other large euro area countries would be very acute, given their exposure to the Italian economy."

The commission praised steps already taken, advancing by a year to 2013 Italy's target for a return to a balanced budget and a proposed constitutional amendment to underpin that aim.

But Brussels maintained that "Italy's predicament won't subside unless Italy addresses the root causes of its own vulnerabilities heads-on."

The commission listed required reforms including to pensions, labour markets and the removal of barriers to competition, but also said sharpened targeting and "absorption" of EU grants particularly to the poorer south was under way.

It underlined that high borrowings and low growth across Italy as a whole pre-date the nearly two-year-old euro crisis and the 2008 financial crisis that unleashed it.

The head of the International Monetary Fund (IMF), Christine Lagarde, said on Monday that the fund had not received any request for aid from Italy, despite rumours of a bailout of up to 600 billion euros for the ailing economy.

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