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Italy PM unveils sweeping austerity package

Reuters
Dec 05, 2011 at 10:29am IST

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Rome: Prime Minister Mario Monti will present a 30 billion euro package of austerity measures to parliament on Monday designed to shore up Italy's strained public finances and help to stem a debt crisis threatening to overwhelm the euro zone.

Cabinet approved the mix of tax hikes, pension reforms and incentives to boost growth in a three-hour meeting on Sunday, opening one of the most crucial weeks since the launch of the euro more than a decade ago.

The package, dubbed a "Save Italy" decree by Monti, aims to raise more than 10 billion euros from a new property tax, impose a new tax on luxury items like yachts, raise value added tax, crack down on tax evasion and bring forward measures to increase the pension age.

Italy PM unveils sweeping austerity package

Cabinet approved the mix of tax hikes, pension reforms and incentives to boost growth.

The measures come before one of the most crucial weeks since the creation of the single currency more than a decade ago, with European leaders due to meet on Thursday and Friday in Brussels to try to agree a broader rescue plan for the bloc.

Italy, the euro zone's third-largest economy, has been at the centre of the crisis since mid-year, when its borrowing costs began to approach the levels which forced Ireland, Greece and Portugal to seek an international bailout.

Packed into a single emergency decree, the measures take effect immediately, before formal parliamentary approval, but Monti will have to secure the backing of legislators within 60 days for them to remain in force.

Monti, appointed at the head of a technocrat government to replace former Prime Minister Silvio Berlusconi last month, had been under growing pressure to come up with concrete measures to address fears about Italy's towering debt mountain.

He has held to Berlusconi's pledge of a balanced budget by 2013, despite growing signs that Italy is heading into a recession that will make it extremely difficult to make inroads into a public debt of 120 percent of gross domestic product.

Deputy Economy Minister Vittorio Grilli said the measures outlined on Sunday would allow the goal to be met despite a forecast that GDP would contract by 0.4-0.5 percent in 2012.

Monti, who brought forward cabinet approval of the measures by a day to Sunday, is due to give a briefing to the foreign press at 1100 GMT before presenting the measures to parliament in the afternoon.

The package is divided into 20 billion euros of budget tightening and an additional 10 billion euros that will be pumped back into the economy in the form of measures to help companies and boost growth.

European Monetary Affairs Commissioner Olli Rehn welcomed the "timely and ambitious" measures and said the Commission would carry out a detailed assessment once it had received full details of the package.

Caught between the competing needs of boosting growth and ensuring that cuts do not further depress an already fragile economy, Monti's technocrat government risks growing opposition after an initial honeymoon period with a public fed up with the scandals of the Berlusconi era.

"A package to cry over," the daily Il Secolo XIX headlined its front page on Monday, over a picture of Welfare Minister Elsa Fornero, who broke down in tears while presenting measures that will mean an effective cut in income for many pensioners.

Unions criticised the package and in an early sign of possible opposition to the Monti government, FIM-CISL, a union representing metal workers, said it would call a two-hour strike on Wednesday.

"Yet again, the sacrifices demanded fall mainly on salaried workers and pensioners and on the weaker sections of society," the union said in a statement.

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