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Grim OECD outlook for Italy

Thursday, May 02, 2013 - 02:09

May 02 - Italy's new Prime Minister visited Brussels on the last stop of his tour of Europe, as the OECD says Italy's economy will contract more than expected this year. Joanne Nicholson reports.

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Italy's new Prime Minister's been trying to drum up support to ditch austerity, in favour of growth. And the European Commission president expressed his support for Enrico Letta's efforts. (SOUNDBITE) (English) EUROPEAN COMMISSION PRESIDENT JOSE MANUEL BARROSO, SAYING: "We trust that the government will finance this in a credible way in order to keep the deficit below three percent of GDP in 2013." But as Letta's European tour comes to an end, the OECD says the chances of growing their way out of the crisis, are slim. And Italy's new economy minister says his country must exit the European Union's excessive deficit procedure - the mechanism that seeks to ensure countries don't sink deeper into debt. (SOUNDBITE) (Italian) ITALIAN ECONOMY MINISTER, FABRIZIO SACCOMANNI, SAYING: "The closure would put Italy in a select group with northern European countries and would have a positive effect on borrowing costs, on our state bonds and German state bonds and reduce the costs of the public debt." But the OECD says Italy will have to come up with a better plan. It's urging the government to get to the core of the problem by cutting spending and tackling corruption. Italy - which has the euro zone's second largest debt after Greece - has been under strict EU controls after posting budget deficits that broke the limit of 3 percent of GDP. Despite the austerity adopted by the previous technocratic government, Italy's public debt looks set to rise to a new record of 131.5 percent of output this year - worse than expected. And the OECD says Italy's economy will shrink by 1.5 percent in 2013, more than originally forecast. Jan Randolph is head of sovereign risk at IHS Global. SOUNDBITE (English) JAN RANDOLPH, HEAD OF SOVEREIGN RISK IHS GLOBAL, SAYING: "They need to open up, welcome competition, welcome in foreign investment. They've got to regain an ability to compete." But Letta has other problems to deal with when he touches down on home soil. There are problems within the new coalition, at odds over how the country will pay for cuts to an unpopular housing tax. And unemployment is soaring at a 20-year high.

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Grim OECD outlook for Italy

Thursday, May 02, 2013 - 02:09