Monday

25th Jun 2018

Italy eyes €27.6 billion cuts to avoid debt crisis

  • Close up of euro banknote, showing Italy and Greece. Rome has adopted cuts to ward off market attacks (Photo: Alessandro Marotta)

The Italian government is eyeing spending cuts worth € 27.6 billion over the next two years, a move similar to those recently announced by Spain and Portugal in order to re-establish market confidence in euro economies.

"The measures which will make up the budget adjustment in the next two years will not be very different from those being taken by Paris, Madrid, London, Berlin and Lisbon," economy minister Giulio Tremonti told the Corriere della Sera newspaper on Sunday (16 May).

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The deficit-capping measures, worth €13 billion in 2011 and more than €14.5 the following year, are expected to be approved by 1 June. They are to include salary cuts in the public sector, as in Spain and Portugal, and a freeze on hiring new staff.

Italy's corruption-prone southern regions, which already face problems in the healthcare sector, may see Rome slash development funds and raise local taxes.

Prime Minister Silvio Berlusconi's government has pledged to reduce the country's public deficit from 5.3 percent of gross domestic product (GDP) last year to 2.7 percent in 2012. According to the rules of the eurozone, its 16 members need to keep their deficits below three percent of GDP, but most countries have breached the threshold amid the economic slump and dwindling state revenues in the past two years.

In recent weeks, Italy has been mentioned along with Spain and Portugal as countries which risk repeating a Greek-type debt scenario. Rome's public is much lower than Lisbon's (9.4 percent of GDP) and Madrid's (11.2 percent of GDP), however.

Portugal last week announced deep wage and spending cuts along with higher taxes to cut the public deficit by more than half. Spanish Prime Minister Jose Luis Rodriguez Zapatero also announced austerity measures totalling €15 billion, including cutting civil service pay by five percent. Spain is also considering tax hikes.

For his part, French Prime Minister Francois Fillon last week announced a three-year freeze on public spending, but rejected opposition and trade union accusations that the government had adopted "austerity measures."

Deficit reduction measures are not being taken by southern eurozone countries alone. In non-euro-member Britain, among the first steps taken by new Conservative Prime Minister David Cameron on Thursday was to order a symbolic five-percent salary cut for cabinet members.

New EU member Romania last week announced a sweeping 25 percent cut in public officials' salaries and slashed old age pensions 15 percent from 1 June.

Hundreds of pensioners and public employees protested against the decision last week, with labour unions saying they plan a "Greek-style" protest on Wednesday to force the centre-right government to drop its plans.

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Greek bailout exit takes shape

At a meeting next week, eurozone finance ministers and the IMF are expected to agree on new cash, debt relief measures, and a monitoring mechanism to ensure that Greece can live without international aid for the first time since 2010.

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