Italy’s austerity plan ‘weak and inadequate’

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Despite the Italian finance minister's reassurances that a crackdown on tax evasion will provide enough revenue to replace the levy on high earners dropped from Rome's austerity package, employers' group Confindustria has labelled the government's plan "weak and inadequate" and expressed concern about how Italy's economic problems are being handled.

Finance Minister Gulio Tremonti said yesterday (1 September) the government would crack down on tax evasion as part of Italy's €45.5 billion austerity package and insisted that the changes would not create a shortfall in the plan, which seeks to balance the budget by 2013.

Tremonti presented the amended package to the Italian Senate yesterday after weeks of squabbling within the centre-right coalition had undermined the country's credibility among international investors.

Confindustria said that despite recent amendments, the austerity package approved by Prime Minister Silvio Berlusconi's government last month lacked clarity and did not contain structural measures to boost growth.

"The package that is being laboriously shaped seems weak and inadequate," the powerful business lobby said in a statement.

It expressed "strong concern" over "how the serious situation of Italy's public finances and the economic recovery is being dealt with".

The austerity package, which features a mixture of spending cuts and tax hikes, was hastily drawn up last month to reassure panicked markets that public finances were solid in the euro zone's third-largest economy.

But it has been widely criticised since and has been changed repeatedly, with Berlusconi rolling back measures in the face of protests – sometimes just days after they have been announced.

The chairman of the association of Italian municipalities, Osvaldo Napoli, described the situation as "disastrous" on Thursday, and said mayors would continue their protest.

The government has already scrapped a proposed "solidarity tax" on high earners and reduced planned cuts to local authority funding. It has also backtracked on measures that would have delayed retirement for many university graduates.

Berlusconi told reporters late on Thursday that he had reassured European Union leaders that Italy would achieve its goal of balancing the budget by 2013.

He said opposition parties that have fiercely criticised the plan and proposed their own alternatives were "criminals" and "anti-Italian", claiming that they were fuelling market concern about Italy.

It is estimated that changes to the package have left a funding shortfall of 4-6 billion euros. A lack of detail has made it difficult for analysts to judge whether the measures will be enough to achieve the required deficit cuts.

Berlusconi told the Il Tempo daily that the government could increase value-added tax by one percentage point to 21%, if needed, to make up the shortfall.

He said later that VAT could be raised to 22% for three months, if necessary.

Confindustria said the government's changing plan "underlines the risks that inadequate management of these problems can have for Italy and all of Europe".

Wrangling over the package has caused tension in Berlusconi's government, and more changes are likely before the amended version is passed in parliament later this month.

Berlusconi vows to leave 'shitty' Italy

Meanwhile, a fresh turn in the investigation into Berlusconi's alleged crimes and misdemeanours reportedly led the premier to claim that he would leave "this shitty country of which I'm sickened".

The remarks were made in a telephone conversation secretly recorded by police investigating claims that Berlusconi was being blackmailed about his sex parties in Rome.

The scandal involving Bari businessman Giampaolo Tarantini came to light in the summer of 2009, when prostitutes alleged he had paid them to attend parties at Berlusconi's villa in Rome. Tarantini admitted he had paid call girls but said Berlusconi was unaware of their backgrounds

The sex scandal at the origin of the latest allegations was one of several involving Berlusconi in the past three years.

Since the euro zone's debt crisis erupted last year, the region's governments have aimed to limit it to Greece, Ireland and Portugal, which have so far signed up to bailouts totalling almost €400 billion.

Spain and Italy had managed to keep their access to market funding under control through fiscal reforms. But in the last two weeks the situation has worsened. Due to the sizes of the Spanish and Italian economies, pressure on the euro zone would increase dramatically if either country eventually needed financial assistance.

Privately analysts have estimated that a three-year bailout of Spain, based on its projected gross issuance of medium- and long-term debt in 2011, might cost some €300 billion – excluding any additional money for cleaning up Spain's banks. A three-year rescue of Italy could cost twice that.


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