Italy facing ‘downward spiral’?

Italy could face months of economic turmoil, according to Minister Tommaso Padoa Schioppa…

Padoa Schioppa was speaking at a meeting of EU economy ministers in Brussels, as Asian markets recorded a second day of heavy losses and European bourses showed severe jitters as they awaited the opening in New York.

”We have six difficult months ahead of us,” the Italian minister said. ”It’ll be half a year of financial turbulence” which would probably bring ”difficult and unforeseen developments”.

In a bid to reassure the US markets, the Federal Reserve later announced it was cutting its main interest rate from 4.25% to 3.5%, its biggest cut since 1982. The cut, decided quickly and outside the normal calendar of Fed meetings, was ”exceptional and without precedent,” Padoa Schioppa said.

Downward spiral

Addressing fears throughout the euro zone that the US economy could drag the European one into a downward spiral, Padoa Schioppa said Europe was placed ”infinitely better” than the US at present.

”It is balanced on a macroeconomic level, both in terms of prices and public finances, while the US has a gigantic trade deficit and a low level of saving in both private and public spheres”.

But he warned that Europe was not entirely immune and acknowledged that the Italian government’s growth forecast of 1.5% for 2008 would have to be scaled back.

The Bank of Italy recently predicted 1% growth for this year and the Confindustria association of industrial employers has put the figure at 1.3%.

”Clearly the latest estimates are closer to the ones we would offer at the moment,” said Padoa Schioppa, a former member of the European Central Bank’s board.