Reuters/Rome
European Central Bank President Jean-Claude Trichet told Italy’s struggling centre-right government to deliver on its promised austerity package, adding to international pressure on weakened Premier Silvio Berlusconi.ECB support is vital because the Frankfurt-based central bank has been buying Italian bonds in markets to keep yields low enough for Rome to continue borrowing without needing outright aid from the EU or IMF.Trichet said measures promised on August 5, when Berlusconi said he would balance the budget by 2013 and launch major economic reforms, were “extremely important.”“It is therefore essential that the objectives announced for the improvement of public finances be fully confirmed and implemented,” he said in an interview with Italian business daily Il Sole 24 Ore yesterday.Trichet’s comments underline rising concern at Italy’s haphazard progress in agreeing measures to bring its strained public finances under control, joining the Bank of Italy, the European Commission and employers’ federation Confindustria.Hans-Werner Sinn, head of Germany’s influential IFO economics research institute, said Italy had visibly slackened its efforts to rein in its deficit ever since the ECB stepped into the market. Hampered by deep political and personal divisions, the government has struggled to come up with a coherent plan since the August 5 pledge, proposing and then rapidly abandoning a series of measures from a tax on high earners to changes on pension rules.Ministers have insisted the commitments will be respected but critics from the hardline CGIL trade union to Confindustria have blasted the flip-flopping. The employers’ federation described the measures on Thursday as “weak and inadequate”.Berlusconi, already reeling from a string of scandals, was hit by fresh revelations from an extortion court case on Thursday. His isolation was underlined by bitter comments from a police wiretap in July in which he spoke of leaving “this shi... country” in a few months and said he was “disgusted” with Italy.Market doubts about Italy and its €1.9tn debt pile have been reflected in the yields on 10-year government bonds, which have crept up steadily since the ECB intervened last month to buy Italian paper.Yields on the bonds, which had fallen from record levels of over 6% last month, have since come back up to 5.24%. Economists generally agree levels around 7% would be unsustainable for the government.Spreads over benchmark German bonds also widened yesterday to 320 points – the widest since the ECB started buying Italian debt.Berlusconi has vowed to continue and angrily brushed off the latest scandal, set off by the arrest of a businessman accused of extorting hundreds of thousands of euros from the premier over a prostitution affair.But it has added to doubts about whether the government has the necessary focus and discipline to implement measures now being anxiously watched across the eurozone, which could not survive a Greek-style crisis in its third largest economy.Berlusconi’s government has been limping badly since last year when an internal party split brought it close to collapse. The centre-right coalition has since re-established a working parliamentary majority but persistent infighting has meant that speculation of an early election is never far away.