MILAN — U.S. Treasury chief Timothy Geithner and a U.S. ratings agency both praised Italian Premier Mario Monti's new austerity measures, saying Thursday he was leading the debt-strapped nation in the right direction.
Fitch Ratings said Monti's new taxes, spending cuts and growth measures have strengthened the credibility of Italy's attempts to balance its budget by 2013 and have eased some of the pressure on the country's beleaguered credit rating.
Geithner expressed confidence in Italy's ability to rebound after Monti's tough reform package and announced Monti will visit the White House in January.
"Monti has committed to a very strong program of economic reforms," Geithner said after meeting with him in Milan.
"Of course, the leaders of Europe are also working to strengthen the financial firewall that is essential for economic reforms in Italy and Europe to work," Geithner added. "These are vital and critical and also very challenging reforms, and they will take time, and I think we, the world, can be encouraged by the progress of these past weeks."
However, Fitch said the outlook on Italy's A+ rating remains negative, reflecting the need for Italy to deliver substantive structural reforms to boost growth. It added that Italy also has to demonstrate it can continue to tap bond markets at sustainable rates, given its need to rollover a large chunk of debts next year. Italy has to refinance €200 billion ($268 billion) by the end of April alone.
Fitch also said the negative outlook is also in part due to the continuing eurozone sovereign debt crisis. Leaders of the EU, including Monti, are heading to Brussels later for a key summit Friday that could determine the future of the shared euro currency.
Italy has a staggering public debt — €1.9 trillion ($2.5 trillion) — or 120 percent of its GDP but it is considered too big for Europe's current bailout facilities to bail out. A default by Italy could breakup the 17-nation eurozone and reverberated across the global economy.
Fears that Italy was losing control of its public finances heaped massive pressure on the country's borrowing rates recently. For much of the past month, the yield on the country's ten-year bond has hovered around 7 percent, the threshold that eventually forced Greece, Ireland and Portugal into seeking bailouts.
Monti, an economist and former EU commissioner, announced emergency measures that seek to save €30 billion ($40 billion) through austerity measures and reinvest €10 billion ($13.4 billion) from those measures to enhance growth.
The rescue plan was approved Sunday by Monti's Cabinet of technocrats but it has yet to get parliamentary approval. Still, it has already prompted the country's ten-year bond yield to fall to around 6 percent.Comment on this story
"The overall message that the package conveys — that the Italian government is seeking to deliver a credible fiscal consolidation program over and above that already outlined this summer — is encouraging," Fitch said.
The ratings agency also praised Monti's intention to liberalize Italy's rigid labor laws and open up restricted professions to further competition.
Monti replaced Silvio Berlusconi as prime minister last month after markets lost faith that Berlusconi could deliver the financial reforms his nation needed.
Pylas reported from London.