Fears of a default by Sicily played down as focus turns to Italy's struggling south

The struggles of Italy's poorer southern cities came under the spotlight yesterday as the Government moved to play down fears of a default by Sicily.

Reports suggested as many as 10 Italian cities, including Naples and the Sicilian capital Palermo, face difficulties managing their finances as bloated public administrations struggle in the face of falling tax revenues. The problems are most acute in the traditionally poorer south although even wealthier northern cities have been hit after Genoa declared a state of emergency last month under the weight of €100m (£78bn) in debt.

Fears about the financial stability of Sicily have risen after comments last week by the prime minister Mario Monti, who said there were serious concerns about the possibility of the region defaulting.

But Italy's interior minister Annamaria Cancellieri dismissed concerns that Sicily may default or be placed under government administration.

"There is no risk of default although there is a very serious economic situation on the island as there is in other regions," Ms Cancellieri said.

Italy, the eurozone's fourth-biggest economy, saw its own borrowing costs rise as high as 6.39 per cent yesterday amid worries over contagion from Spain's woes.