WASHINGTON (Reuters) - Doubts are growing in the German government that Italy could be rescued by the European emergency fund, even if the fund were to be tripled in size, according to the German newsmagazine Der Spiegel.
The financial needs of the country are so huge that it would overwhelm resources, according to government experts, Der Spiegel said in its online edition. Italy’s public debt is about 1.8 trillion euros, or 120 percent of its national output.
Germany has consistently said that troubled euro-zone governments should focus on spending cuts and internal reforms, not bailouts. The European Financial Stability Fund currently has 440 billion euros and was designed to help small to medium-sized countries, although the spreading of the debt crisis to Italy and Spain has led to calls for its expansion.
Der Spiegel also said that disagreement remained within the European Central Bank over whether it should buy Italian bonds in the secondary market to provide support to the country.
According to two different sources, ECB President Jean-Claude Trichet would disccuss with the ECB Governing Council this weekend how to respond to the turmoil in financial markets and Italy’s debt troubles.
The central bank shocked markets last week when it resumed buying bonds for smaller euro zone countries but left out Italian and Spanish debt, where yields have skyrocketed in recent days to 14-year highs on worries that politicians are unable to bring their debt problems quickly under control.
Writing by Stella Dawson; Editing by Eric Walsh