Saturday

23rd Jun 2018

Italy approves more cuts as recession worsens

  • Rome's borrowing costs are on the rise again (Photo: Giampaolo Macorig)

Italian Prime Minister Mario Monti won a confidence vote on Tuesday (7 August) linked to another €4.5 billion worth of spending cuts aimed at convincing investors that Italy's economy is sound.

But fresh data shows a worsening recession and rising borrowing costs.

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The bill - which comes on top of previous spending cuts amounting to a total of €26 billion by 2014 - was approved with 371 MPs, while 86 said No and 22 abstained.

The €4.5 billion worth of cutbacks will be implemented by the end of this year. The remaining €21.5 billion are to be spread out over the next years.

Thousands of hospital beds are to be slashed and 20 percent of top public officials to be fired as part of the austerity drive.

Meanwhile, fresh data shows that Italy's gross domestic product shrunk by 0.7 percent in the April-June period compared to the previous three months.

Italy's borrowing costs for the benchmark 10-year bond are also above six percent, less than one percent short of what is considered bailout territory.

Monti in recent months relentlessly pushed for a "semi-automatic" intervention by the eurozone's bailout funds and the European Central Bank (ECB) when countries, such as Italy and Spain, do the right thing but pay too much interests on their bonds.

Germany oppses the idea and insists that countries need to sign up to a formal programme - as Ireland, Portugal and Greece did when they got bailouts - however.

Concessions obtained by the Italian technocrat - a respected economics professor and a former EU commissioner - have so far failed to impress markets.

An ECB bond-buying action announced by the bank's chief Mario Draghi, also an Italian economist, was in the end delayed by the German central bank until September.

Tuesday's vote in Italy is important given Monti's recent troubles in gathering support for further austerity measures, particularly from the party of former prime minister Silvio Berlusconi, who is testing waters for a political comeback.

An interview in the Wall Street Journal published on Monday in which Monti said the borrowing costs would have been even higher if Berlusconi was still in power, did not help.

Berlusconi's party decided to vote against the austerity package, with one of their MPs, Pietro Laffranco, explaining that Monti had "said a big stupid thing and we wanted to send a signal."

Monti apologised for the remarks.

He also had to water down statements made on Monday in another interview, with German magazine Der Spiegel.

"The autonomy of the parliament in relation to the executive is not up for debate," he said, after having told the German magazine that governments need more negotiating room from parliaments when dealing with euro-crisis measures.

His remarks were promptly rebuffed in Germany, where the Bundestag's powers over the government are such that Chancellor Angela Merkel has to phone key MPs during summits when money is at stake.

"The Chancellor's view is that we have always got along fine in Germany with the correct degree of support by parliament and the correct degree of parliamentary participation," Merkel's spokesman Georg Streiter said on Monday.

German foreign minister Guido Westerwelle also said there is need for "a strengthening, not a weakening of democratic legitimacy in Europe."

Italy debt rating downgraded

US ratings agency Moody's has cut Italy's debt rating by two notches citing a contagion risk from Spain and Greece as the eurozone crisis continues to rage.

Germany gets its way on ECB bond-buying

The ECB has said it "may" buy Spanish and Italian bonds, but only if governments first sign reform pledges with the eurozone's bailout fund - a German demand.

Eurozone recession to continue in 2013

The eurozone economy will shrink by a further 0.3 per cent in 2013, the European Commission has said. The bloc will have to wait until 2014 before seeing economic growth.

Opinion

The risks behind the 'green bond' boom

The EU should not overuse the financial system in order to achieve environmental goals, or it risks the emergence of a green bond bubble which would be detrimental to the financial sector and hinder the achievement of climate targets.

Opinion

Eurozone needs institutional reform

Both the examples of Greece and Italy test the limits of a system with inherent weaknesses that feeds internal gaps, strengthens deficits and debts in the European South, and surpluses in the European North respectively.

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