Italy to bolster austerity plan, speed up approval

AP News
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Posted: Jul 13, 2011 11:50 AM
Italy to bolster austerity plan, speed up approval

Italy will strengthen its package of austerity measures and fast-track its approval by parliament, Finance Minister Giulio Tremonti pledged Wednesday as he sought to calm market fears that the eurozone's third-largest economy would be swept into the European debt crisis.

Italy's move to intensify its austerity drive received a much-needed boost from Fitch Ratings agency, which said the measures will help stabilize the government's finances and its credit rating. Fitch is the last ratings agency to weigh in on Italy's finances, after Moody's and Standard & Poor's both warned of possible downgrades.

Italian lawmakers were working to bolster the euro48 billion ($67 billion) in austerity measures that begin to take effect this year and aim to balance the budget by 2014. The Senate is set to vote on Thursday before passing off to the lower house on Friday in votes that will measure confidence in Premier Silvio Berlusconi's government.

"The decree to balance the budget will be reinforced for the entire four-year period, and will be approved by Friday," Tremonti told a banker's association.

While Tremonti's remarks were clearly aimed at reassuring financial markets that Italy was serious about its duty to reduce debt, the finance minister also said market losses in recent days were not a problem "of a single country but of the structure of Europe."

"At this moment, we have more or less 40 percent of Europe under pressure," he said.

Fitch backed that analysis in its report, noting that the market turmoil that hit Italy in recent days was not due to a deterioration in the country's finances but broader fears about the eurozone.

"Italy is on track to meet this year's budget target and the additional measures recently announced strengthen the credibility of the goal of a balanced budget by 2014," said David Riley, Fitch's Head of Global Sovereign Ratings.

Still, concerns about Italy's high debt, dysfunctional political system and stodgy growth have focused attention on the country's financial future.

Italy's acceleration of the austerity measures provided some relief to markets, although analysts say sentiment remains fragile and volatile.

The Milan stock exchange was trading 1.8 percent higher, while the 10-year yield dropped to 5.54 percent after rising above 6 percent a day earlier.

With so much at stake, there was little concern in Rome that partisan politics would hamstring the measures. But commentators and analysts have expressed concern that too much of the pain is being put off until 2013 and 2014 _ including cuts to the notoriously high costs of maintaining lawmakers, among the highest paid in Europe.

Prime Minister Silvio Berlusconi, weakened by scandals and political losses in local elections and referendums on his policies, sees his current mandate expire in 2013.

"The measures currently in discussion in parliament are full of holes, of contradictions and mistaken proposals both on their merits and time frame," columnist Eugenio Scalfari wrote in La Repubblica, one of the harshest critics of the current government.

"Approval by the Senate by Thursday will demonstrate only the sense of responsibility within the opposition, but it would not change the nature of the operation that is completely inefficient in confronting the speculation and the negative market reactions," he wrote.

Political and administrative costs _ now running at euro23 billion ($32 billion) a year _ will be on the block. They include euro1.7 billion a year for lawmaker pay and expenses, as well as euro1 billion for a fleet of tens of thousands of official cars.

Lawmakers' average salaries alone, at euro11,704 ($16,470) a month before taxes, are to be cut by as much as 50 percent to an EU mean _ but not before the next elections.

Tremonti said the austerity package would include measures aimed at keeping public works within budget and on deadline. He slammed voters for killing laws to introduce nuclear power and privatize public water systems, saying this would have a negative impact on economic growth.

The measures are also likely to include a new drive to privatization, with news reports focusing on such assets as the state railway and postal service. The sales, however, would only be made once the economy recovers in order to achieve better prices.