Brussels, 03/11/2011 (Agence Europe) - In the end, Italian Prime Minister Silvio Berlusconi, accompanied by Finance Minister Giulio Tremonti, presented his G20 partners in Cannes (France) on Thursday 3 and Friday 4 November with a slimmed down version of the initial austerity package. President Sarkozy reacted positively, saying he had confidence in the Italian economy, which is one of the strongest in the world. He said Berlusconi had briefed his partners on the outcome of the Italian government meeting and is clear that the problem is not the measures as such, but their implementation.
The negotiations on Wednesday night among the ever more divided Italian government, along with a veto by the president of Italy, Giorgio Napolitano, led to some of the package of measures submitted to the EU last week being scrapped (see EUROPE 10483) - measures that would have had to be adopted by the government in the form of a decree. This means that for the moment, measures will be abandoned like a property tax and taking tax directly from people's bank accounts, changes in labour law to make it easier to sack people (vetoed by the president) and restricting pensions after so many years of service (seniority pensions), which the Northern League, Berlusconi's main partner, will not contemplate. The pensions question is not yet clear because Berlusconi is reported to have told his G20 partners that the retirement age would be raised to 67 by 2026.
What remains is a series of measures set out in a hefty amendment to the recent draft law on stability, due to be submitted to the two houses of the Italian parliament by 15 November 2011 (see EUROPE 10487), which are intended to prove to Italy's international partners that it will meet its promises made at last week's eurozone crisis and ease speculation on the markets. In order to put an end to dissent within the government and be credible to his partners, Berlusconi announced that he would be demanding a vote of confidence from the parliament over the austerity package so that a detailed timetable for implementation can be set out, along with clarity about the measures that will actually be introduced.
The measures cover areas including: - The labour market. The option of sacking surplus civil servants who refuse to move to a new job within two years, along with measures to encourage employers to take on young people and women, particularly in small businesses. The Italian regions will be given greater room for manœuvre when it comes to taxation; - Fast-track sales of public property. Land and property sales should generate income of €5 billion a year in 2012-2014 inclusive; - Tax breaks to finance large public works; - Liberalising various highly regulated professions; - Boosting competition in the gas industry, fuel, car insurance and local public transport (see EUROPE 10487 and 10483).
Italy's partners have reacted cautiously to this confusing array of measures and uncertainty about the future of the Italian government against a backdrop of intense speculation about the country's debt (interest rates on one-year bonds hit a massive 6.1% on Tuesday). The European Commission has only commented that it is very important for Italy to apply to the letter and within deadline the commitments made in its letter to the EU heads of state and government to return to a balanced budget in 2013, adding that aid to Italy from the European Stability Fund was pure speculation at this stage.
This cautious reaction can be compared with the report on Italy's finances that was unveiled on Thursday 3 November by the Italian National Bank, describing a serious, but positive, situation. Faced with a high public debt and low growth, the economy has strong fundamentals, like low private debt, the absence of a property bubble, most of the debt being owned by Italians (42.5% is owned by non-Italians, compared with an EU average of 52%) and a trend towards balanced public accounts (confirmed by the IMF, which reports that the only EU countries that will not be increasing their debt over the next few years are Germany and Italy). The IMF says Italy's debt will start to come down in 2013, which Berlusconi was keen to point out to his partners at the G20. (FG/transl.fl)