Blissful Belle

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Debt Damage In Italy


Italy’s Prime Minister Silvio Berlusconi made the announcement this week that he will resign his post in office after major economic reform bills were approved.

The decision to step down came at the urging of both opponents and supporters of Berlusconi. His inability to stabilize Italy’s economy, which is steadily declining, led to the realization that his remaining in office would not be in the best interest of the Italian people.

The BBC reports the prime minister as saying “Once this finance law is approved, along with the amendments on everything which Europe has asked of us and which the Eurogroup has asked for, I will resign, so that the head of state can open consultations.”

Fox News reports “Italy’s budget deficit is about 3.6 of GDP—less than half of the U.S. gap, but its total debt, amassed over many years, is 130 percent.”

Despite efforts to lower Italy’s debt by 2% Italy will still need to borrow almost $300 billion, an amount investors are not willing to lend due to the country’s lack of financial reliability.

The BBC also reports “the cost of government borrowing spiked at a new record of 6.76% after the vote, around the 7% threshold at which Portugal and Ireland were forced to accept bailouts.”

When a country is forced to bail out it means that the government has to give or loan money to a business or, on a major scale, businesses in order to keep them from going bankrupt.

A bailout is different than a default. When an economy defaults it means the country loses their credit rating making borrowing money in the future more expensive and less likely.

It seems as though Italy is heading for default. Each news broadcast brings information about efforts on Italy’s part to avoid default. With the Prime Minister ousted and the economy in the tank Europe and the rest of the world will have to sit back and wait to see what is next.

 

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About Amanda Schiavo

I am an aspiring author and Journalist

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