- Associated Press - Monday, October 24, 2011

ROME (AP) — Premier Silvio Berlusconi lashed out Monday at his German and French counterparts, who have demanded Italy introduce tough new measures to spur economic growth, and chided them for trying to “give lessons” to Rome and insisting Italy’s economy was stable.

Mr. Berlusconi‘s pointedly critical statement came as he summoned his Cabinet for an emergency meeting to discuss growth measures the European Union has demanded so Italy doesn’t get further dragged into Europe’s debt crisis. The 17-nation eurozone already has been forced to bail out three of its weakest members — Greece, Ireland and Portugal — but could not handle a possible bailout of Italy, the eurozone’s third-largest economy.

The EU wants Italy to reform its labor markets and its inefficient judicial system, considered a main impediment to foreign investment. But Italy’s bickering political parties have suffered a near-paralysis when it comes to making substantive structural reforms.

Over the weekend, French President Nicolas Sarkozy and German Chancellor Angela Merkel issued stern warnings to Mr. Berlusconi that he must do more.

Mr. Berlusconi, however, bristled at the criticism, saying Italy was already taking measures to cut its public debt and balance its budget by 2013. “No one in the EU can nominate themselves commissioner and speak in the name of elected governments,” he said. “No one can give lessons to EU partners.”

He said Italy’s banking system was stronger than that of France and Germany, though he pledged Italy’s “loyal collaboration” to Mrs. Merkel in improving governance of the eurozone. He also urged Italy’s political factions to work together for the benefit of the country.

Italy has passed 54 billion euros ($75 billion) in austerity measures aimed at balancing the budget by 2013, but implementation has been slow, and the government has faltered on promised growth measures.

Ministers and lawmakers on Monday were debating measures aimed at raising the retirement age to match that of Germany, which is raising its retirement age to 67 for anyone born after 1964. However, any change in Italy’s retirement age will face fierce resistance from Mr. Berlusconi‘s main political ally, the Northern League, whose constituency includes workers in Italy’s productive north. Unions also oppose raising the pension age.

Italy doesn’t want to damage the rights of retirees,” said Foreign Minister Franco Frattini, a close ally of Mr. Berlusconi‘s. “We want to give people now in their 40s the possibility of having a pension in 20 years.”

Still, he admitted the system must be reformed, saying, “If it doesn’t change, the pension system will be unsustainable.”

A weekend EU summit failed to make tough decisions to tackle Europe’s growing debt crisis, but leaders pledged to lay out a concrete measures on Wednesday. They are likely to include actions to recapitalize Europe’s banks, which are expected to have to take steep losses on Greek debt, as well as boosting the eurozone bailout fund.

Italy is feared to be the next nation that could succumb to the crisis and bailing its 1.9 trillion euro ($2.63 trillion) debt — nearly 120 percent of its GDP — would overwhelm the eurozone and threaten the entire global economy.

Mr. Berlusconi skipped a court hearing in his Milan corruption trial on Monday to work on meeting the EU’s demands after Italy got unwanted attention from Germany and France, Europe’s largest economies.

“We made it very clear that Italy is a big and important partner for the euro area and that everything needs to be done to live up to this responsibility,” Mrs. Merkel told reporters after meeting with Mr. Berlusconi on Sunday.

“Trust does not just come from a firewall,” she added. “Italy has great economic power, but Italy also has a very high overall debt level. And that was to be taken down in the coming years in a credible way.”

Italian officials were particularly irked by a shared smirk between Mrs. Merkel and Mr. Sarkozy at a joint press conference Sunday when they were asked if they had received assurances from Mr. Berlusconi about reducing the public debt.

Italy’s borrowing costs to service its enormous debt have been rising over the past months as the government falters on economic reform. Bank of Italy Governor Mario Draghi has warned that without quick action, the growing yields will eat up a significant portion of the austerity measures that Italy adopted in September under pressure from the European Central Bank, which Mr. Draghi will head from Nov. 1.

For weeks, the ECB has been buying up billions in Italian bonds, trying to keep Italy’s borrowing costs down.

Colleen Barry in Milan and Don Melvin in Brussels contributed to this article.

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