Italian Prime Minister Silvio Berlusconi agreed to speed up economic reforms today, in hopes of enticing the European Central Bank to prop up the world’s eighth largest economy.
Speculation that Italy and Spain would be unable to repay their government debts, and fears of a slowing economy in general, helped drive down stocks around the world and erased more than $4.5 trillion from the value of equities worldwide since July 26, Bloomberg said.
Berlusconi told reporters in Rome that Italy would move up efforts to balance its budget to 2013, a year earlier than previously planned.
“We consider it appropriate to introduce an acceleration of the measures which we introduced recently in the fiscal planning law to give us the possibility of reaching our objective of balancing the budget early, by 2013 instead of 2014,” Berlusconi told a news conference. He spent the day conferring by telephone with world leaders such as German Chancellor Angela Merkel and U.S. Treasury Secretary Tim Geithner.
The Italian government has already approved an austerity package estimated at 48 billion euros ($67 billion), though most of the cuts in welfare and work rules would come in future years, after Berlusconi is scheduled to leave office.
Staggering under a debt load of 120% of its GDP, Italy has been faced with raising interest rates in its regular sales of government debt to attract loans. By agreeing to the accelerated cuts, the country makes it more likely that the ECB will step in to buy their debt, and keep rates from rising further.
In sales this week, Italy was forced to pay investors rates of more than 6.1%, generally near or at the highest levels in a decade.
Early this week, the European Commission President Jose Manuel Barroso called for an increase in the euro zone’s 440 billion-euro ($616 billion) emergency relief fund created in the wake of the debt crisis in Greece, Ireland, Portugal, Italy and Spain.
Barroso’s plea, opposed by Germany’s Bundesbank, presented investors with the prospect that government defaults were more likely than previously anticipated.