ITALY:ITALY'S CABINET unanimously approved a new €45 billion austerity plan, double the amount of cuts previously proposed by Rome, prime minister Silvio Berlusconi said last night after a cabinet meeting concluded.
The €45 billion in cuts over the next two years to balance the budget by 2013 will meet the demands of the European Central Bank (ECB).
The Italian government had been under pressure from the ECB to accelerate the pace of cuts, after continued market volatility raised questions about the level of debt in Europe’s third-largest economy.
Mr Berlusconi told a news conference that the measures respond to requests from the ECB, which demanded a balanced budget a year earlier than anticipated as well as structural reforms to promote growth.
The cabinet approved €20 billion in cuts for 2012 and €25 billion for 2013.
“We are personally very pained to have to adopt these measures,” Mr Berlusconi told reporters.
European Commission spokesman Olivier Bailly welcomed moves by member states to cut deficits. “The measures decided or about to be decided by the member states [including Italy and France] are welcome by the commission if they are meant to address the excessive public deficits and debts issues, in order to help national economies meeting the 3 per cent target by 2013 [as agreed at EU level],” said Mr Bailly.
ECB sources said that at the end of the day it was not about announcements by politicians but about implementation of policies and getting the measures through national parliaments.
ECB sources said it was impossible to foresee when the banks’ extraordinary bond-purchasing programme for Italy and Spain would cease. But by definition it was an unconventional measure and it was up to governments to make the necessary fiscal adjustments and reforms.
Ciaran O’Hagan, head of European interest-rate strategy at Société Générale in Paris, said it was imperative that sovereign debt levels be addressed.
“Either governments get their public finances in order or they don’t. If they don’t we will go from crisis to crisis and those countries in crisis will have to rely on the generosity of taxpayers of other countries,” he wrote in a research note.
Equities markets were relatively calm at the end of a whipsaw week sparked by Standard & Poor’s downgrading of the US credit rating. Just before trading stopped last night Wall Street remained on track for its worst three-week decline since March of 2009 when stocks hit 12-year lows.
US stocks were up about 1 per cent, while European shares closed up 3.6 per cent. Bank shares, which have fallen sharply in recent days, led the move higher in Europe after the ban on short selling imposed by France, Italy, Spain and Belgium.
“Markets have stabilised a little bit after the short-selling ban,” said Colin McLean, managing director at SVM Asset Management in Edinburgh. “But banks have fallen pretty far and most are oversold and are just bouncing off low levels.” – (Additional reporting: PA, Reuters)
