Letta on Talks with Merkel Over Economic Growth Plan

Enrico Letta, the Italian Prime Minister is heading to Berlin on his 2nd full day in office for presenting economic growth plan to Angela Merkel, the Chancellor of Germany. The program which calls for tax cuts for businesses, homeowners and consumers won the confidence vote in the Italian parliament on yesterday and also garnered the required approval from the bond investors. This pushed the 10-year Government yields of Italy to the lowest figures in the last 2 and half years. Letta and Merkel are scheduled to hold a joint press conference after discussing the whereabouts of this economic growth plan of Italy.

On yesterday, Letta gave his introductory speech to the Government and therefore gave the European leaders and investors the very first look at the newly shaped Italian Government. The economic growth plan compromises among the 3 different parties which back the Government including assurances on the country’s commitment to budget rigor. Many analysts feel that the plan lacks details about how Letta would fund the tax reductions.

According to the Chief European Economist of Mizuho International, Riccardo Barbieri, it’s pretty clear now that the Italian Government has to perform a difficult balancing act to perform. Incidentally, Letta stated that he has cut the Government expenditures without any sort of damaging tax hike. Many feel that by Government expenditures he meant the benefits which are given to the politicians and the senior Government employees.

The 10-year bond yields of Italy have experienced a decline of 15 basis points and are currently at 3.91%. Incidentally, Letta’s swearing in on 28th April brought an end to the political stalemate of Italy that lasted for 8 weeks. The elections were inconclusive in last February. The benchmark gauge of Italy, FTSE MIB Index also jumped up by 2.2%.

Italy is currently in its 2nd year of recession and it also bears the 2nd largest debt load in the entire European region, only after Greece. Only last week, Letta emerged as the leader of the Italian Parliament and he has taken over for Mario Monti, who guided the country through the European debt crisis by increasing taxes and also by prodding Angela Merkel into some collective action in the European Union.

Letta feels that in Europe and Internationally, Italy can find strategies for boosting growth without compromising on restructuring process of the public finances.