Sapa-AFP and Reuters Rome
Italy would “collapse” like Greece if it did not adopt harsh austerity measures, Prime Minister Mario Monti warned yesterday as his draconian plans got a boost from the financial markets and Europe.
As he presented the e30 billion (R323bn) package of tax hikes, pension reforms and growth-boosting incentives to parliament for approval, Monti said the plan would restore Italy’s credibility and help solve the euro zone debt crisis.
“If Italy were not capable of reversing the negative spiral of growth in debt and restoring confidence to international markets, there would be dramatic consequences, which could go as far as putting the survival of the common currency at risk,” Monti told parliament.
“Italy is ready to do what it has to do but Europe must not fail to do its part,” he said. .
The package, dubbed a “Save Italy” decree by Monti, aims to raise more than e10bn from a property tax, impose a new levy on luxury items such as yachts, raise VAT rates, crack down on tax evasion and increase the pension age.
“Without this package we believe Italy will collapse, Italy will become like Greece, a country for which we have a lot of sympathy but which we do not want to become,” Monti, a former EU commissioner, said at a press conference.
“We did our part yesterday (Sunday),” said Monti, adding that he was optimistic that the crisis-busting plan of tax increases, budget cuts and pension reforms adopted by the cabinet on Sunday would be approved in parliament.
Monti’s announcement of the plan on Sunday kicked off one of the most crucial weeks since the launch of the euro more than a decade ago, ending with a summit of European leaders in Brussels on Thursday and Friday to seek a wider set of crisis measures.
Italy, the euro zone’s third-largest economy, has been at the centre of the crisis since mid-year, when its borrowing costs began to approach the levels that forced Ireland, Greece and Portugal to seek an international bailout.
Markets welcomed the measures, which analysts said should be enough to persuade the European Central Bank to keep holding down borrowing costs by buying Italian bonds.
Yields on 10-year Italian bonds dropped to 6.2 percent, about a full percentage point lower than last week, while the risk premium over benchmark German bunds narrowed to 408 basis points, levels last seen in early November.
Dutch Prime Minister Mark Rutte, who met Monti in Rome yesterday morning, said he was “very impressed” by the package, which was also welcomed by the European Commission.
Most Italian newspapers praised Monti for biting the bullet in a difficult moment and for distributing the pain.
“There are times when you have to displease everyone and certainly, this, for Italy is one of those moments,” the Turin daily La Stampa said.
Packed into a single emergency decree, the measures take effect immediately, before parliamentary approval, but Monti must secure the backing of legislators within 60 days for them to remain in force.
Monti, who replaced former prime minister Silvio Berlusconi last month, was under growing pressure to come up with concrete measures to address fears about Italy’s debt.
He has held to Berlusconi’s pledge of a balanced budget by 2013, despite growing signs that Italy is heading into a recession that will make it extremely difficult to make inroads into a public debt of 120 percent of gross domestic product (GDP).
Deputy Economy Minister Vittorio Grilli said the measures outlined on Sunday would allow the goal to be met despite a forecast that GDP would contract by 0.4 percent to 0.5 percent next year.
The package is split into e20bn of budget tightening and an extra e10bn that will be pumped back into the economy in the form of measures to help companies and boost growth.
Unions criticised the package and FIM-CISL, a union representing metal workers, said it would call a strike tomorrow.