Eurozone moves to stem Italy contagion

EUROZONE POLICYMAKERS have discussed using the bloc’s bailout fund to stem any contagion from Italy’s debt woes to other eurozone countries, the European Central Bank’s chief economist said.

A jump in Italy’s borrowing costs since its coalition government proposed a deficit-boosting budget last month, has reignited concerns that the eurozone still cannot put its debt woes behind it.

The ECB’s Peter Praet said this was starting to fan worries about Greece again too, and that policymakers were looking at whether the European Stability Mechanism (ESM) could be used to prevent further contagion.

“There is one discussion, which is at the political level, about precautionary measures we could take if there would be spillovers to (other) countries,” Praet said.

“(These are) not central bank measures. It is related to the ESM and to countries... having spillovers to some external events.”

As part of plans to shore up the eurozone, its finance ministers have been discussing an idea to grant governments easier access to precautionary credit lines from their ESM bailout fund.

The discussions started well before Italian policies created the contagion risk, but the rising tensions around Italy have increased the level of focus on what safety nets are available.