Italy approves fresh multi-billion-euro stimulus plan

29.06.09 @ 09:21

  1. By Andrew Willis

Italian ministers approved a new stimulus package on Friday (26 June) - reported to be in the region of €4.5 billion – as the government attempts to stave off a further slide in economic activity this year.

  • The size of Italian stimulus plans has been constrained by high public debt levels and rising budget deficits (Photo: EUobserver.com)

Measures under the new plan - whose total size has yet to be finalised - include tax incentives for businesses that re-invest profits in new machinery and refrain from cutting workers.

The government also intends to reduce costs for gas utilities in order that savings can be passed onto consumers.

The new stimulus comes as forecasters predict the Italian economy will contract by a greater margin than initially anticipated this year.

Earlier this month, the Paris-based Organisation for Economic Co-operation and Development cut its growth forecast for Italy for 2009 to a contraction of 5.3 percent, a significant deterioration from a March forecast of a 4.3 percent contraction.

Italian industry minister Claudio Scajola said in a statement after the cabinet meeting that the government had decided to "intensify actions against the crisis".

As EU member states announced initial stimulus plans last winter to tackle the crisis, the Italian government faced criticism over the modest size of its proposed package.

The country's prime minister, Silvio Berlusconi, outlined a stimulus package totalling €80 billion last November, but critics pointed to the fact that only €5 billion consisted of new funding.

High national debt levels and rising budget deficits have constrained the Italian government's ability to roll out greater spending packages.

The OECD predicts the country's debt as a percent of GDP will come close to 120 percent in 2010, with the budget deficit set to reach 6 percent.

Second French stimulus?

In France, Prime Minister François Fillon insisted on Sunday that funds collected through the issuance of a new national savings bond would not be used to finance day-to-day costs but would instead go to specific sectors that would drive financial and social benefits in the future.

These included spending to safeguard the country's environment, universities and industrial competitiveness, said Mr Fillon.

But he insisted the spending of funds gathered from the new bond issuance plan – announced by President Nicolas Sarkozy in a speech to the French parliament last week – did not constitute a "second stimulus plan".

"[The fund] will serve to outline our vision for France, that is to say, a post-financial crisis France," he said after a government meeting in the premier's head office.

The government will launch a consultation period this week on the setting up of the new bond scheme to raise extra funds, expected to last several months before it is finally put into place next year.

A recent poll by market research company Opinion Way showed 56 percent of the French population oppose the government's bond plan and that 82 percent do not intend to subscribe to it.

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