Berlusconi faces resistance over emergency cuts

Posted Aug. 12, 2011, at 1:59 p.m.

ROME — Italy’s premier faced resistance from local government officials Friday who denounced the country’s emergency austerity measures, saying the cuts are socially unjust and urging the central government to start from scratch.

Silvio Berlusconi was working feverishly for Cabinet approval of the new austerity measures. He and Finance Minister Giulio Tremonti met regional, provincial and city authorities at the premier’s office.

But the hasty news conference held after the meeting by the local officials did not bode well for broad acceptance for new sacrifices.

The proposed cuts to such critical services as local transportation and welfare would have “a depressive … effect,” hurting most the underclasses and inhibiting the productive north from contributing to national gross domestic product, Roberto Formigoni, the governor of the northern Lombardy state, told reporters.

Rome passed a 70 billion euro ($99 billion) austerity package last month, but the government has said the financial situation has deteriorated significantly since then and is seeking new measures.

Under intense pressure from the European Central Bank and eurozone political leaders, the government agreed to bring forward its goal of balancing the budget to 2013 instead of 2014 as originally planned, and to come up with structural reforms that stimulate investment and growth.

In exchange, the ECB has been buying Italian bonds on the secondary market to hold down borrowing costs threatening to topple Italy’s notoriously high public debt.

Local administrations were being asked to cut 6 billion euros ($8.55 billion) in spending next year, Formigoni said. That’s from total additional proposed cuts of 20 billion euros in 2012. Austerity measures in 2013 would total 25 billion euros.

Formigoni and other officials want to draft alternatives to the government cuts. Formigoni said that Lombardy, one of Italy’s most economically productive regions, would see its GDP suffer — which in turn would hurt national growth.

“We are facing cuts, not to the political class, not to the administration, but to social services,” Rome Mayor Gianni Alemanno.

Formigoni and Alemanno are conservatives and allies of Berlusconi.

Tremonti told lawmakers Thursday that possible measures include privatizing local services, raising the tax on capital gains, immediately raising the retirement age for women in the private sector, and relegating nonreligious holidays to Sundays to increase productivity. He also is seeking to ease Italy’s rigid labor-market laws and reduce the “costs of politics,” or the ruling elite’s generous salaries and perks — not just in Rome but in local governments — that have enraged Italians.

The government must try to stimulate Italy’s stagnant economy — which is expected to grow only by about 1 percent this year. And while Italy’s debt is among the highest in the eurozone — at nearly 120 percent of GDP — poor growth is a key factor hindering Italy’s ability to improve its public finances.

Italy’s Central Bank on Friday said public debt topped 1.9 trillion euros for the first time in June.

Tito Boeri, a noted economist, said the measures needed to be better-conceived than the previous package — since the deteriorating economic situation makes the correction more difficult — and more balanced to win broad acceptance.

“The cardinal rule must be that of fairness,” Boeri, a professor at Milan’s Bocconi University, wrote in La Repubblica, adding that the earlier austerity measures put twice the burden on the lower and middle classes as on the richest 10 percent of the population.

The government has been holding urgent talks before the Cabinet meeting, scheduled for Friday evening, in an effort to put the measures into force by decree before the traditional mid-August vacation when much of Italy shuts down. It has also been meeting with business leaders and unions.

Responding to increasing market nervousness, last week members of key lawmaking committees were called back from its summer recess. And the full houses of Parliament might reopen in August, ahead of schedule, because although government decrees become effectively immediately, they still need to be converted to law by Parliament within 60 days.

Tremonti’s presentation to lawmakers Thursday failed to convince some of his own allies, a sign of possible rifts within the coalition. The opposition accused Tremonti of being too vague, and insists Berlusconi must resign.

Italian borrowing costs remained way below the levels they struck last week before the European Central Bank intervened in the markets to get them down. The yield on the 10-year bond is below 5 percent compared with over 6 percent last week. The drop now makes it easy for Italy to keep up on its debt payments.

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