Italy's Tremonti: strong fiscal measures needed

AP News
Posted: Aug 11, 2011 10:32 AM
Italy's Tremonti: strong fiscal measures needed

Italian Finance Minister Giulio Tremonti told lawmakers Thursday that tough and speedy measures are needed over the next two years to balance the budget by 2013 while the country's borrowing costs continued to ease in the markets following intervention from the European Central Bank.

Tremonti laid out possible measures, including privatizing local services, raising the tax on capital gains, raising the retirement age for women in the private sector, and relegating nonreligious holidays to Sundays to increase productivity.

Tremonti said some measures, including making it easier to fire workers and cutting public sector salaries, were among the suggestions made by the European Central Bank. However, he indicated later that not all the ECB's suggestions would be taken. A letter last week from the ECB, which has not been made public, prompted Premier Silvio Berlusconi to pledge to balance the Italian budget by 2013, a year ahead of schedule.

Opposition leader Pier Luigi Bersani said the ECB's intervention illustrates the weakness of the government.

"There is an absence of ideas and of solidarity," Bersani said.

Tremonti said the financial situation had deteriorated significantly since Parliament in mid-July passed euro70 billion ($99 billion) in austerity cuts aimed at balancing the budget by 2014 _ a date that had been set by the European Union.

"Since then there have been new, successive, intertwined facts that modified the course of our activity, which brings us here," Tremonti said.

Tremonti cited the protracted debate to raise the U.S. debt ceiling as one of the factors behind the greater market turbulence, which saw Italy's borrowing costs in the markets spike up to uncomfortably high levels.

The rise in Italy's bond yields signaled a lack of market confidence in the Italian measures, many of which weren't due to be enacted until the end of the government's current term in office in 2013.

Tremonti told a joint session of parliamentary committees that Italy needs to reduce its deficit of around 3.9 percent of national income in 2011. He said a decline to 1.1 percent next year was probably too drastic.

Tremonti that that will require "very strong measures" this year and next, and he called on all parties to "lay down their weapons."

Responding to pressure from the ECB, Berlusconi last week pledged to balance the budget a year earlier and to come up with structural reforms. In exchange the ECB decided to buy Italian bonds _ a move that has significantly eased the borrowing costs.

By late afternoon Thursday, the yield on Italy's ten-year bonds fell to 4.99 percent, the first time it's been below 5 percent since July 5.

Parliament committees have been convened during the summer recess to draft measures, and President Giorgio Napolitano was cutting short his holiday to meet later in the day with Berlusconi and Tremonti.

In a worrying sign for Berlusconi, four members of his party said in a statement they were not persuaded by the presentation, and that their vote in favor of the measures should not be taken for granted.