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Italy has come through the peak of its economic crisis but is not out of danger yet, Economy Minister Vittorio Grilli said in a newspaper interview on Sunday, warning that painful reforms introduced by the government should not be reversed. The parties that support Prime Minister Mario Monti's government have demanded changes to his budget, saying it would hurt households already suffering from austerity measures.
"We have taken the right path and markets are giving us credit but we should not give the impression that Italy and Europe are thinking to change direction," Grilli said in an interview with newspaper Avvenire published on Sunday.
The yield spread between Italian and German government bonds has narrowed to about 320 basis points from about 540 in July, signalling an improvement in market confidence.
But Grilli said the objective was to bring it at least back to May 2011 levels under 200 points, before the sovereign debt crisis erupted. He said today yields on Italian ten-year government bonds of below 5 percent were "tolerable".
"Markets appreciate austerity and sacrifices, but demand that we do not give up," he said.
Grilli said the government had included a 900 million-euro ($1.2 billion) fund in new budget measures that parliament could decide how to spend, possibly to help those who have been hit hardest by austerity policies.
On Saturday, Monti said he expected it would be only a few more months before signs of recovery start to emerge in the Italian economy. Italy has been in a recession since the middle of last year, weighed down by austerity measures passed by Monti's government to cut the country's massive debt, including tax hikes, spending cuts and a pension overhaul.

Copyright Reuters, 2012

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