Berlusconi seeks to calm fears of full-blown financial crisis
Italy on THE EDGE
Prime Minister Silvio Berlusconi sought yesterday to calm fears that Italy could be swept into a full-scale financial crisis as the centre-left opposition pledged to help parliamentary approval of debt-cutting measures.
"For us, for Italy, this is certainly not an easy moment," Mr Berlusconi said in a statement that followed a chaotic morning on financial markets in which Italian 10-year bond yields climbed past 6pc, their highest level in more than a decade.
Economy Minister Giulio Tremonti left a meeting of eurozone finance ministers early to return to Rome to wrap up approval of a €40bn package of austerity measures expected to be passed in parliament in the coming days.
"The actions under discussion in parliament will accelerate the reduction of the debt. This year, we will bring the primary balance into significant surplus," Mr Berlusconi said.
"The crisis is pushing us to accelerate the process of correction extremely rapidly, to strengthen its content, to fully define further steps to bring the budget into balance by 2014."
Opposition parties said that despite objections to parts of the package, which cuts funding to local government and health services and delays retirement, they would support parliamentary approval of the bill by Friday so that it would be passed by the time markets opened on Monday.
With Italy sitting on €1.6 trillion of outstanding government bonds, any increase in borrowing costs could severely disrupt efforts to cut a debt mountain equivalent to 120pc of gross domestic product.
"Any delivery from the government on the austerity package, any good news in that respect, is very, very positive. So if politicians are getting their act together, it's absolutely good news," said Royal Bank of Scotland analyst Paola Biraschi.
Italy, the eurozone's third-largest economy, has largely avoided the turmoil hitting Greece, Portugal and Ireland thanks to a relatively modest budget deficit, a conservative banking system and a high level of private savings.
But it has been targeted over worries about the sustainability of its mountainous public debt burden, raising the threat of a crisis which could potentially overwhelm the euro area and break up the single currency.
Mr Tremonti has overseen a four-year, €40bn austerity package designed to keep the government on track to meet a target of cutting the public deficit from 3.9pc of GDP in 2011 to bring it into balance by 2014.
With the opposition ready to support the package, a number of smaller amendments were discussed late yesterday, including changes to tax and pension measures.
The changes would see planned tax hikes on holders of financial instruments eased for small investors, while rules on inflation adjustment for pensions would be weighted against higher incomes and in favour of lower and middle incomes.
The government was also working on a measure that would ensure that €15bn of fiscal measures pencilled into its austerity plan were cemented into the final package.
Mr Berlusconi said Italy had overcome even more difficult moments in its past.
"We must be united, cohesive in our common interest, conscious that the efforts and sacrifices of a brief period will correspond to permanent and secure gains," the prime minister added.