UPDATE 1-Italy joins Europe’s austerity club with deep cuts

* Cuts to total some 26 billion euros in two years

* Government official says must avoid “Greek-style risk”

* Cabinet to meet at 1600 GMT

* Coincides with year-low consumer confidence figures

(Updates figure in para 9,unions para 16,researchers para 19

By Philip Pullella

ROME, May 25 (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 programmes
to slash budget deficits, centred 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
some 13 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”.

END OF A “FAIRY TALE”

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.

Unions were divided. The centrist UIL and CISL unions said
they would await the final numbers but the leftist CGIL, Italy’s
largest, called the cuts “unfair to salaried workers” and said
it would demand changes when the law goes through parliament.
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.

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.

Workers at economic research institutes ISAE and ISFOL held
protests against plans for them to be shut and some of their
workers integrated into the Treasury. Some will lose their jobs.

Investing Research
(Writing by Philip Pullella; additional reporting by Gavin
Jones, Francesca Piscioneri, Giuseppe Fonte, Silvia Aloisi and
Antonio Denti; editing by Dominic Evans)

UPDATE 1-Italy joins Europe’s austerity club with deep cuts