Berlusconi Cabinet to Call Confidence Vote on Austerity Plan
Italian Prime Minister Silvio Berlusconi called a Cabinet meeting today to authorize a confidence vote in Parliament on an amended 45.5 billion-euro ($64.5 billion) austerity plan that prompted a general strike.
The meeting at 6 p.m. in Rome will pave the way for a vote on the measures, which will include raising the value-added tax rate by one percentage point to 21 percent, a 3 percent levy on incomes of more than 500,000 euros a year as well as an increase in the retirement age of women in the private sector starting in 2014, Berlusconi’s office said in an e-mailed statement.
The premier called the meeting as Italians took to the streets to protest the budget cuts and after weeks of bickering on the measures stoked concern among investors and European leaders about Italy’s ability to prevent contagion from the region’s debt crisis. The Senate began debating the package today and may approve it as soon as tomorrow, leading to a final vote by the Chamber of Deputies by week’s end.
“The government has not been up to the task of handling this crisis,” Susanna Camusso, head of Italy’s biggest union CGIL, told demonstrators outside the Coliseum in central Rome. “This is an unfair and useless budget plan and totally irresponsible as it hits workers and pensioners.”
The premium investors demand to hold Italian 10-year bonds instead of benchmark German bunds dropped to 364 basis points as of 5:13 p.m. in Rome, after soaring to 371 basis points yesterday, the highest since before the European Central Bank started buying Italian bonds on Aug. 8. The yield fell to 5.487 percent after hitting 5.557 percent yesterday.
The eight-hour walkout by CGIL, Italy’s biggest union, disrupted travel and manufacturing as protests in Rome and other cities attracted as many as a million people, according to the union. Fifteen percent of workers at Fiat SpA (F) took part in the strike, the nation’s biggest manufacturer said by e-mail.
Fifty-eight percent of employees stayed off the job, the union said in a statement on its website, citing a survey. Innovation Minister Renato Brunetta, citing a poll of 10 percent of civil servants, said 3.1 percent of public-sector workers participated in the strike, according to an e-mailed statement.
About 50 percent of trains, most of them regional, were halted, according to CGIL. Rome’s two metro lines and local commuter trains were shut down, ATAC, the company that runs them, said in a statement on its website.
Hundreds of people were stranded at airports in the capital and Milan as flights were delayed or canceled. Alitalia SpA said it canceled some domestic and international flights and Ryanair Holdings Plc (RYA) said it canceled 200 flights to and from Italy, affecting some 35,000 passengers.
The austerity package, the government’s second in a month, was announced on Aug. 5 to convince the ECB to buy Italian bonds after contagion from the region’s debt crisis sent the 10-year yield to a euro-era record. The plan set a goal for balancing the budget in 2013, rather than a previous target of 2014.
The government then overhauled the package, bowing to political pressure from allies and stoking concern that it was backsliding on its pledges. Last week, Berlusconi dropped an original version of the “solidarity tax” on incomes of more than 90,000 euros a year, trimmed funding cuts to regional governments by around 1.8 billion euros and scrapped a measure to change pension-payment rules.
Spain is “worried” that Italy is contributing to market instability by wavering on austerity, Development Minister Jose Blanco told Telecinco television today.
German Chancellor Angela Merkel and European Union President Herman Van Rompuy agreed at a meeting in Berlin late yesterday that distressed euro-area countries must swiftly implement pledges on structural reforms and deficit cuts, said a German official who asked not to be identified because the talks were private.
“There is a sense that, mainly because of the abruptness of the crisis, Italy is not ready, politically and psychologically, for what is now being demanded of it,” said Nicholas Spiro, who runs Spiro Sovereign Strategy, a London- based consulting firm specializing in sovereign-credit risk.
The government reacted today after President Giorgio Napolitano urged political parties last night to overcome their differences and strengthen the austerity measures. “Nobody can underestimate the alarming sign” from bond markets, he said in an e-mailed statement. “There’s still time to introduce measures in the Senate that can strengthen the efficacy and credibility” of the plan.
“The Italian government appears to be in some disarray as it has backtracked on some of the more unpopular measures,” Jim O’Neill, chairman of Goldman Sachs Asset Management, said in an e-mailed note earlier this week. “Many European policy makers appear to be in a state of shock about this particular twist. This is not surprising given the intensity of debate about ECB actions to support the beleaguered Italian bond market.”
Finance Minister Giulio Tremonti said on Sept. 1 that lost revenue from the solidarity levy will be compensated for by a crackdown on tax evasion and the plan would still meet deficit- reduction goals. The changes in the package create a shortfall of at least 7 billion euros, according to Vladimir Pillonca, an economist at Societe Generale SA in London.
The new levy on incomes over 500,000 euros a year will last until Italy balances its budget, according to today’s statement. Some 3,641 Italians declare earnings in excess of that amount, Tremonti said in Cernobbio, Italy, on Sept. 4.
Downgrades of Italy’s credit rating now “look probable,” Societe Generale economists said in a report yesterday, citing the poor economic and budgetary outlook and “uncertainties over the availability of market financing.” Standard & Poor’s and Moody’s Investors Service put the country’s credit rating on review in May and June, respectively, citing weak economic- growth prospects.
Officials at the Frankfurt-based ECB have called on Italy to stick to its budget targets. The austerity package must be “fully confirmed and implemented,” ECB President Jean-Claude Trichet said in Cernobbio on Sept. 3.
Bank of Italy Governor Mario Draghi, who will become ECB president on Nov. 1, said the central bank’s bond buying is “temporary” and should not be taken for granted by euro-region member states. The purchases “cannot be used to circumvent the fundamental principle of budgetary discipline,” Draghi said, according to the e-mailed text of a speech in Paris yesterday.
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