Italy's public debt hits record

  

Italy's public debt hit an all-time high in June of almost €2 trillion and the annual budget deficit was also bigger than a year before, due largely to Italy's share of bailouts for other eurozone states, the central bank announced.

Public debt at the end of June rose €6.6 billion to €1.973 trillion, the Bank of Italy said yesterday (13 August), as the Treasury's cash reserves increased by €10.3 billion.

Italy's benchmark bond yields remain close to 6% despite tough austerity measures introduced by Prime Minister Mario Monti's government.

With the country mired in a deep recession, markets are sceptical of Italy's ability to bring down a debt pile equivalent to around 123% of output, the second highest debt in the eurozone after Greece's.

The economy contracted 0.7% in the second quarter and gross domestic product was down 2.5% from a year earlier.

In another worrying sign for public finances, the Bank of Italy reported that in the first half of the year the annual budget deficit, at €47.7 billion, was €1.1 billion higher than in the same period of 2011.

This was due to an increase in spending to help other eurozone countries, which rose to €16.6 billion from €6.1 billion in January-June 2011.

Italy itself is under pressure to request help from Europe's bailout funds, a move now widely seen as the only way to bring down borrowing costs that have soared in recent months, but which the government has so far resisted.

Italy's one-year borrowing costs rose marginally at auction yesterday, with uncertainty over how and when the European Central Bank might move to ease both the country's and the region's mounting debt problems tempering appetite for risk.

Rome is targeting the deficit to fall sharply this year to 1.7% of GDP from 3.9% in 2011, but Economy Minister Vittorio Grilli admitted on Sunday that this target would be missed.

Grilli asked the ECB to move more quickly to put together plans to bring down Italy's yields and said no new policy conditions should be imposed on Italy.

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