July 14, 2024

Italy Approves an Austerity Package

The three-year plan is designed to eliminate the government’s budget deficit by 2014. The package is balanced between lowering spending and increasing revenues, Finance Minister Giulio Tremonti said, adding that the measures should also spur the growth of Italy’s dawdling economy.

“Reducing the budget deficit is not just about numbers, it is a political and ethical objective of a country,” Mr. Tremonti said at a news conference. “It is reflected in choices of responsibilities between citizens and generations.”

The plan now goes to Parliament, which is expected to vote on it before the summer recess. But tensions over the measures have flared repeatedly within the cabinet in recent weeks, and the package is likely to face hurdles in Parliament.

Prime Minister Silvio Berlusconi has said that he would ask for a confidence vote.

Mr. Tremonti did not provide details on the final version of the budget, but draft versions indicated that the bulk of the cuts would come from reductions in spending on local governments and ministry budgets, an extension of existing wage and hiring freezes for public workers and reductions in tax breaks for companies and families.

In addition, the drafts called for increases in costs to the public for some medical services and a gradual increase in the age at which women will be eligible for pensions.

A commission will consider reductions in politicians’ salaries and benefits, to bring public officials’ compensation in line with European Union standards.

Greece’s debt crisis has brought much attention to the finances of other European countries in recent months. Italy’s public debt is about 120 percent of its gross domestic product, which is one of the highest ratios in the world and has put the nation under particular scrutiny.

Growth remains sluggish — just 0.1 percent in the first quarter of this year. Confindustria, Italy’s principal business association, said last month that it had cut its economic growth forecasts to 0.9 percent for 2011 and 1.1 percent for 2012, and it warned that the forecasts could drop even lower if the government’s finances were not overhauled.

Moody’s warned in June that it could downgrade Italy’s credit rating, a month after Standard Poor’s changed its credit rating for the country from stable to negative.

The most significant measures in the new austerity package would go into effect only in 2013 and 2014, after the current government’s mandate expires in 2013. These are designed to yield about $58 billion of the plan’s $68 billion in savings. Opposition leaders and some economists criticized the backloading of the plan, saying that drastic cuts to government spending were the only credible way to sort out Italy’s financial problems.

“They put off until later difficult decisions to make,” said Francesco Daveri, an economist at the University of Parma. “But correcting pensions in 2020, in politics that’s like saying who knows when that’ll happen.”

Some analysts said that the government, reeling from recent losses in local elections and referendums, had little political freedom to propose bold but unpopular measures.

But others said that by putting off the bulk of the austerity measures, the government’s actions were less credible. “This is not the right signal,” said Tito Michele Boeri, a professor of economics at Bocconi University in Milan.

Article source: http://www.nytimes.com/2011/07/01/world/europe/01italy.html?partner=rss&emc=rss

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