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Austerity Update: Italy Waits to Learn its Fate

By Mari d’Antonio, Online Marketing Executive at Wolfestone

As Greece voted to keep a government committed to austerity measures, Europe breathed a sigh of relief and southern Europe began to see the light at the end of the tunnel. Italy, one of the countries hit by recession, has been through difficult times recently. However, under the technocrat-led government of Mario Monti, it’s on the road to recovery. Whether Italy makes it through the recession may well now depend on its own citizens.

Italy has made it through its own trials and tribulations in this recession; on the brink of economic collapse in November, Prime Minister Silvio Berlusconi resigned from power. 10-year Italian bond yields had shot past the “point of no return”with 7%. With Italy being simply too big an economy to bail out, as Ireland and Greece had been, the future of the single currency hung in the balance.

Berlusconi's resignation, and the optimism over Monti's new government, helped the Peninsula return to safe levels. Since then, the government has been forced into introducing tough new austerity measures, many at the behest of other European leaders. This has had an inevitable result of making the Monti administration unpopular with Italians.

Suicides of desperate, newly bankrupt citizens have not helped win the argument that these cuts are entirely necessary. 5.7% of the population now live in absolute poverty; one in four in the south of the country. Popular or not, Italy has taken itself out of the firing line whilst Spain has stepped in range. The Greek problem was rectified, at least in the short term.

On 13th July, Moody's downgraded Italy's sovereign debt rating to Baa2, due to worries that Italy could feel the effects were Spain and/or Greece to have more woeful financial issues, along with increased concerns over the future political situation. Regardless of that bad news(and of it being an inauspicious date – Friday 13th), Italy's banks successfully sold debt at favorable rates, prompting a renewed confidence that the banking sector may indeed help Italy through, regardless of the political situation.

That may well be put to the test next year - part of the downgrade was due to risk that may surface in the Spring 2013 General Election when Mario Monti will step-down. Anti-European sentiment, along with resentment of recent economic sacrifices, could form a political landscape that is not conducive to continued economic reform.

With the news that Berlusconi is set to bring back his Forza Italia party, it may well require the people to vote for austerity in order to see Italy through these troubled times.

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