New Governments in Italy and Greece Face Debt Crises
Nov. 13, 2011
Mario Monti, a highly respected economist and a former European Union (EU) commissioner, has been nominated to become Italy’s prime minister and form a new government to tackle the acute national debt crisis. (National debt is the total amount that a federal government owes because of money it has borrowed by selling bonds or other securities.) Italy’s former prime minister, Silvio Berlusconi, formally resigned on November 12 after a new austerity package (strict economic measures) were passed by both houses of parliament. The austerity package includes a mixture of tax increases and spending cuts with the aim of saving 59.8 billion euros ($89.6 billion) to balance the budget by 2014. On November 9, the yield, or rate of interest, on 10-year Italian government bonds shot above 7 percent. (A bond is a certificate issued by a government promising to pay back money it has borrowed). Higher-risk bonds must pay a higher interest rate to attract buyers. When the interest rate on the government bonds of Greece and Ireland in 2010 and Portugal in 2011 climbed to 7 percent, the three countries were forced to seek bailouts from the European Union to avoid bankruptcy (the state of being legally unable to pay debts).
The euro has replaced the individual currencies of 17 member nations of the European Union, including Italy and Greece. European Central Bank
On November 10, Greek political leaders named Lucas Papademos as prime minister. Papademos, also a respected economist, is a former vice president of the European Central Bank. The coalition (multiparty) government he will lead has pledged to save Greece from bankruptcy by quickly approving the tough terms of the second bailout package that was approved by European Union leaders on October 26.
Additional World Book articles:
- Economics
- Crisis in the Eurozone (a special report)
