Berlusconi’s reform plan reassures EU leaders

Barroso and Berlusconi small.jpg

Italy’s EU colleagues expressed satisfaction with the contents of a letter brought to the summit yesterday (26 October) by Prime Minister Silvio Berlusconi setting out Rome’s intention to rein in public expenditure and counter contagion from Greece’s sovereign debt crisis. EU SUMMIT LIVE!

The letter was brought to the summit partly in response to strong pressure by his eurozone heavyweight colleagues, Nicolas Sarkozy and Angela Merkel, at the summit on Sunday (23 October).

In a forward to the main terms of the letter – which was addressed to the Presidents of the Council and Commission, Herman Van Rompuy and José Manuel Barroso – Berlusconi said: “Italy has always honoured its European commitments, and will continue to do so.”

The letter says that the Italian Parliament will adopt reforms within the next year aimed at abolishing provincial administrations, reducing the number of parliamentarians, and increasing market freedom and fair competition.

Italy set to clamp down on tax breaks

A new "balanced budget rule" will be introduced, and Berlusconi pledged to introduce reforms to Italy’s tax system, abolishing tax breaks currently in force by 31 January 2012.

These measures will save €4bn in 2012, €16bn in 2013 and €20bn a year from 2014, the letter says.

In addition, Berlusconi spells out new rules enabling dismissal of workers on permanent contracts, the introduction of a plan for new “structural conditions favourable to growth” to be laid down within the next 8 months, and a plan for selling off state assets by 30 November.

As it has already been announced, Italy’s retirement age will be raised to 67 by 2026 for both men and women.

The letter concludes by saying that the Italian Government will "intervene readily" with further measures, should the situation continue to worsen. Berlusconi signed the letter off with "a strong embrace" to the two leaders.

Asked if Berlusconi had been the subject of "heated debate" in the Council meeting, Polish Prime Minister Donald Tusk said: “Berlusconi was not the subject of debate. He informed us of his letter and his detailed plan of action, and both impressed the summit members.”

Italian sources said that although the letter had been well received, it had also been kept secret from the Italian people up to the last minute, and its implementation, "as with all things Berlsuconi", remained to be seen.

The newly appointed European Central Bank president, Mario Draghi, who is soon to leave his office of Governor of the Bank of Italy, said the letter is “very important.”

“It’s a plan of structural reforms for the Italian economy,” Draghi said.

“Those reforms have to be done. They need to be done swiftly and in a concrete way. And we can’t ignore that they are courageous reforms and thus the weakest part of the population, which will certainly be affected by such reforms, will have to be protected.”

Pierluigi Bersani, the leader of Italy's main opposition group, the Democratic party, dismissed the government's letter as containing "nothing serious."

End of Sarkozy-Berlusconi spat?

Speaking after the summit, Sarkozy was asked by an Italian journalist if he were happy with the commitments taken by the Italian prime minister in his letter to EU leaders.

Sarkozy first said "yes," later correcting himself that it was not for him to give an assessment, but it was up to the presidents of the Commission, the Council and the European Central Bank.

"But according to what I've been told, these commitments are exactly what is needed, and now we expect their implementation," he said.

Then Sarkozy was asked to comment on the news that Berlusconi had announced on Italian television that Lorenzo Bini Smaghi would step down from the executive board of the ECB. Bini Smaghi, from Italy, has held the post since 2005.

Sarkozy shrugged and said he regretted having learned about the decision from news reports.

"There is a commitment which was taken, and as always, it's better when one keeps his commitments. I'm not sure if television is the best way to pass messages, but once again, don't drag me into Italian politics," he said.

He added that there were five members in the ECB board and today two of them were Italians.

"I'm delighted for Italy, but this cannot last, given that there is no Frenchman," he added, between laughs.

He then repeated that there had been an agreement between himself and Berlusconi that in return for French support of Draghi, who was nominated last May to replace Jean-Claude Trichet and who will take over the ECB next week, Bini Smaghi would step down.

According to the agreement, Bini Smaghi had to step down, opening the post to a French candidate.

Italy's mix of chronically low growth, a public debt mountain of €1.84 trillion, or 120% of GDP, and a struggling government coalition are causing growing alarm in financial markets. The country, which is politically unstable, would need at least €600 billion in the case of a bailout, more than the eurozone's current bailout fund.

The government last month pushed through a €60 billion austerity package – bringing forward its original balanced budget target by one year – in return for ECB support for its battered government bonds market.

But doubts now growing over the country's ability to implement these austerity measures.

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