Thursday

28th Mar 2024

Italian cabinet passes austerity package

  • Italy has the eurozone's most sluggish economy (Photo: EUobserver)

The Italian cabinet on Thursday passed a series of austerity measures aimed at balancing the budget by 2014 and stopping the eurozone crisis spreading.

The package, containing €47 billion of deficit cuts, curbs the budgets of government ministries and local authorities. It will have to be passed by parliament within two months.

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"With today's measures we completed our path towards a balanced budget," said finance minister Giulio Tremonti while presenting the package.

Credit rating agencies, which have been toying with the idea of downgrading Italy, will be closely watching how the debate and ensuing vote play out with Italy in the past struggling to get reforms agreed.

The reforms are needed to boost growth in the eurozone's most sluggish economy. Growth is needed if Italy is to have any chance of cutting its massive public debt, lying at 120 percent of GDP.

But analysts have already criticised the fact that most of the measures will only take place in 2013 and 2014.

On the same day Portugal announced a one-off levy on incomes and said it would speed up reforms to meet the terms of its €78bn EU-IMF bailout.

Portuguese prime minister Pedro Passos Coelho made the announcement before parliament after the National Statistics Institute published worse-than-expected data for the first part of this year.

The institute said that the deficit fell to 8.7 percent of GDP at the end of the first quarter. But under the terms of its bailout it has to cut its deficit to 5.9 percent of GDP this year and to 3 percent in 2013.

Meanwhile, the EU watched with relief as the Greek parliament on Thursday agreed a law to implement a further round of austerity and privatisation measures.

The vote paves the way for an emergency meeting of eurozone finance ministers on Sunday where they have to agree to release €8.7bn to Greece, part of last year's EU-IMF €110bn bailout.

Agreement on the IMF tranche is expected next week. The Sunday meeting is also expected to discuss the broad outline for a second bailout for the debt-stricken country.

While the unpopular measures have regularly caused strikes and protests in Greece and Portugal, non-eurozone Britain was also hit by a large public sector walk out as thousands of teachers and civil servants protested planned pension cuts.

Some 104,000 civil servants went on strike while about 27 percent of schools were closed. However, the government was quick to point out that this was less than had been predicted by trade unions.

'Swiftly dial back' interest rates, ECB told

Italian central banker Piero Cipollone in his first monetary policy speech since joining the ECB's board in November, said that the bank should be ready to "swiftly dial back our restrictive monetary policy stance."

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