Italian Prime Minister Silvio Berlusconi faces a final confidence vote on an austerity package that aims to balance the budget in 2014 and shield Italy from the region’s debt crisis.
Berlusconi, staking the future of his government on the outcome, survived a first confidence motion yesterday when the Senate in Rome approved the plan, 161 to 135. The Chamber of Deputies, where he has a narrower majority than in the Senate, holds a confidence vote at about 7 p.m. to secure final passage of the measure.
“Without balancing the budget, our debt, which is a monster that comes from our past, would devour the entire country,” Finance Minister Giulio Tremonti told the Senate yesterday. “What we need now is to get down to hard work in the interest of everybody.”
Berlusconi pushed for quick passage of the bill after investors began dumping Italian securities on concern that Italy, with the region’s second-highest debt, would become the next victim of Europe’s sovereign crisis. The selloff pushed the 10-year bond yield to a 14-year high 6.02 percent on July 12 and sent the benchmark stock index to the lowest since July 2009.
The yield premium that investors demand to hold Italian debt over German bunds rose 11 basis points today to 300 basis points today and the 10-year yield gained 6 basis points to 5.69 percent.
Tremonti said that Italy and even the region’s strongest economies would remain vulnerable until European policy makers come up with a solution for the debt crisis that led Greece, Portugal and Ireland to seek bailouts. “Like with the Titanic, even the first-class passengers can’t be saved,” Tremonti told the Senate.
Berlusconi resorted to confidence votes to pass the package to end debate and force allies to back the measure or risk the government’s collapse. His popularity has fallen to a record low amid corruption allegations and sex scandals that prompted dozens of his deputies to abandon his government last year.
“You haven’t been up to the task -- you haven’t had the courage to be,” Anna Finocchiaro, chief whip in the Senate for the main opposition Democratic Party, said of the ruling bloc during debate in the upper house yesterday. “When markets were routing us, you were fumbling around.”
The budget package extends a freeze on public servant wages, cuts funding for regional governments and ministries, speeds a planned increase in the retirement age and will force Italians to pay 25 euros for some non-emergency hospital visits and 10 euros above existing fees to see specialists. Taxes will be raised on trading accounts holdings with more 50,000 euros in securities and on bonus and stock options.
Warnings from Moody’s Investors Service and Standard & Poor’s that they were reviewing Italy’s rating for a possible downgrade, coupled with opposition within the government to the budget plan designed by Tremonti, helped drive yields higher this month.
The backlash against Tremonti over the budget cuts and the fallout from a corruption investigation into one his closest collaborators had prompted speculation that the minister, the enforcer of the fiscal rigor that kept the deficit in check, would resign. Tremonti, in an interview with the Wall Street Journal today, said he wasn’t stepping down and had no reason to.
The surge in Italy’s bond yields is already boosting the cost of financing its deficit. Italy priced 1.25 billion euros of five-year bonds at an auction yesterday to yield 4.93 percent, the highest in three years and up from 3.9 percent at the previous sale on June 14.
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