Italy joins Europe’s austerity club with deep cuts

By Philip Pullella

ROME (BestGrowthStock) – Italy reluctantly joins Europe’s austerity club on Tuesday with a budget expected to affect everything from health spending and highway tolls to the salaries of the meek and the mighty.

“This will be tough, with heavy sacrifices,” said Gianni Letta, cabinet undersecretary and Prime Minister Silvio Berlusconi’s right-hand man.

After months of telling Italians the country’s finances were immune to a Greek-style crisis, the government opted for what it hopes will be a pre-emptive strike to avert the worst.

Rome joins Greece, Spain and Portugal in enacting programs to slash budget deficits, centered on public sector cuts aimed at regaining investors’ confidence following a 110 billion euro bailout of Greece and the establishment of a $1 trillion safety net to try to prevent the contagion spreading.

The package, which Economy Minister Giulio Tremonti will detail after the cabinet meets to approve it, is expected to reduce the budget deficit by around 26 billion euros over two years, with cuts of 13 billion euros ($16 billion) in 2011.

It will cut public sector hiring and freeze pay for three years, delay retirement for state workers and reduce funds to local government, according to drafts of the decree, comments by Tremonti on Monday night, and newspaper reports.

“This is no ordinary spate of spending cuts. We are all in this together,” Tremonti said hours before the cabinet was due to start meeting at 1600 GMT.

Spending on pharmaceuticals in the public health system will face strict controls to eliminate abuse and waste. The government will turn the screws on tax evasion by outlawing cash transactions above 5,000 euros.

Regional and local governments will be pressed to contribute 5.8 billion euros of spending cuts in 2011-2012, which could affect schools, hospitals and road upkeep. Busy arteries such as the ring road around Rome may become toll roads.

In a clear effort to at least give the appearance sacrifices will be spread evenly, as President Giorgio Napolitano has urged, the measures include cuts in salaries and perks of ministers, parliamentarians and senior state-sector managers.

Letta, speaking hours before new data put consumer confidence at a one-year low, said “the government has to take this action to save our country from a Greek-style risk.”


Commentators said Letta’s harsh realism burst the bubble of optimism the Berlusconi government, which has slipped to new lows in opinion polls, had tried to paint for months.

“The fairy tale is over,” was the left-leaning La Repubblica’s headline on an editorial on the belt-tightening.

The climate of uncertainty could be felt from the halls of power to the street markets.

“They cut, cut, cut and then what? I don’t know, I don’t know what will happen,” said Giovanni Fulvio, a shopper at a northern Italian market.

The deficit cuts, said to be worth around 1.6 percent of Italian GDP, are aimed at ensuring the budget deficit falls to below the EU’s 3 percent ceiling by 2012.

They follow concern in financial markets in recent weeks over peripheral euro zone countries’ public finances, which has returned Italy to the spotlight.

Italy aims to cut its deficit to 2.7 percent by 2012 from 5.3 percent last year — well below the EU average thanks to restraint in stimulus spending during the crisis.

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(Writing by Philip Pullella; additional reporting by Giuseppe Fonte, Silvia Aloisi, Gavin Jones and Antonio Denti; editing by Steve Gutterman)

Italy joins Europe’s austerity club with deep cuts