Italian senate passes plan for further cutbacks
ITALY'S senate has approved Prime Minister Silvio Berlusconi's revised austerity plan, setting up a final vote in the Chamber of Deputies as Italy seeks to stem surging bond yields.
The upper house voted 165 to 141 to adopt the €54bn plan, with three abstentions. The vote took place as protesters hurled smoke bombs and firecrackers outside the senate building, and just a day after thousands of Italians protested in a general strike against the measures.
Italy is struggling to persuade investors it can tame the euro-region's second-biggest debt burden. The austerity package, the second in a month, was announced on August 5 to convince the European Central Bank to buy Italian bonds after the 10-year yield surged to a euro-era record of 6.4pc.
"After a series of U-turns, the Italian budget saga appears to be moving toward a satisfactory conclusion," said Nicola Mai, an economist at JP Morgan Chase Bank in London. "Implementation risks remain, relating to growth and the practical adoption of the measures." He added, however, that the package was "certainly a step in the right direction".
The new package was amended yesterday to compensate for measures dropped in recent weeks. The plan now includes an increase in VAT by one percentage point to 21pc, a 3pc levy on incomes over €300,000 and a higher retirement age for women.
The government had overhauled the package in recent weeks, bowing to political pressure from allies and stoking concern it was backsliding. Last week, Berlusconi cut an original version of a "solidarity tax" on incomes of more than €90,000 a year, trimmed cuts to regional governments by around €1.8bn and scrapped a measure to change pension rules.
With passage secured in the Senate, the austerity package now faces a final vote in the Chamber of Deputies, possibly as soon as this week. Italy may still need further deficit cuts next month as the latest package won't convince the ECB to continue buying Italian bonds, the chairman of the Senate finance committee Mario Baldassarri said.To ensure continued ECB support, Italy may require another plan with more "spending cuts and not tax increases, structural reforms in terms of liberalisation, privatisations, sales of public buildings and so on," said Mr Baldassarri.