UPDATE 2-Italy joins Europe's austerity club with deep cuts

Tue May 25, 2010 5:46pm EDT

Related Topics

* Cabinet approves cuts worth 24 billion euros

* Union leader says cuts are "unfair", hitting the poor

* Berlusconi to detail measures on Wednesday

(Updates with cabinet approval, reaction, analysts)

By Daniel Flynn

ROME, May 25 (Reuters) - Italy joined Europe's austerity club on Tuesday with 24 billion euros of deficit-reducing cuts that target public workers and local government and could hit the popularity of Prime Minister Silvio Berlusconi.

The measures were approved by the cabinet late on Tuesday but some technical details still had to be finalised. Berlusconi and Economy Minister Giulio Tremonti will present a definitive version of the plan on Wednesday.

As well as cutting hiring and freezing salaries in the state sector, it delays retirement and cuts funds to local government.

"This will be tough, with heavy sacrifices," said Gianni Letta, cabinet undersecretary and Berlusconi's right-hand man, before the measures were approved.

A brief statement from the prime minister's office after the cabinet meeting confirmed the overall 24 billion-euro deficit cut and measures such as the delay in retirement, the state salary freeze and cuts to the pay of high public sector earners.

Rome joins Greece, Spain and Portugal in enacting programmes to slash budget deficits with the aim of restoring investors' confidence following approval of a $1 trillion EU safety net aimed at stopping contagion from Greece's debt crisis.

Though Italy kept its budget deficit down to 5.3 percent of GDP last year -- well below the EU average -- the budget aims to slash it to 2.7 percent by 2012.

After months of telling Italians the country's finances were immune to a Greek-style crisis, Berlusconi risks a public backlash over the measures, which come as polls show his popularity is already flagging.

Guglielmo Epifani, the leader of Italy's largest union, the CGIL, said he was waiting to see the final version of the measures but said the thrust of the cuts was "unfair".

"We've already helped the banks so we're now paying twice for what the financial speculators have done," he said. "If I'm a FIAT worker I pay, if I'm a civil servant I pay even more, but if I'm wealthy I don't pay a cent and I don't think I can agree with that."

LATE NIGHT TALKS

Berlusconi held late-night talks after the cabinet meeting with Tremonti and leaders of his ruling centre-right coalition, including the head of the pro-autonomy Northern League party, Umberto Bossi.

"Berlusconi has a very uphill job now because what he has done so far is spread the message that everything is fine," said James Walston, politics professor at the American University of Rome.

"The economic problems undermine the government and make it greyer, but I still don't see it in danger of falling in the near term."

In a clear effort to at least give the appearance the sacrifices will be spread evenly, as President Giorgio Napolitano has urged, the measures will include cuts in salaries of ministers, parliamentarians and senior state-sector managers.

However, regional and local governments will be pressed to contribute some 13 billion euros of spending cuts in 2011-2012, sources said, almost inevitably affecting schools and hospitals. Busy arteries such as Rome's ring road may become toll roads.

With figures on Tuesday already showing consumer confidence slumping to its lowest level in a year amid concern over the austerity package and the euro zone crisis, commentators warned extreme fiscal tightening could cause lasting economic damage.

"If Italy doesn't grow and Europe doesn't grow, we might tidy up public finances but we're condemning future generations to 15 years of wasteland," said Gianni Riotta, editor of Italy's biggest selling financial daily, Il Sole 24 Ore.

The cuts, worth around 1.6 percent of Italian GDP, are aimed at ensuring the deficit falls below the EU's 3 percent ceiling. But with unemployment already running at over 8 percent -- and much higher among the young and in the country's depressed south -- many ordinary people expressed concern and weariness after more than a decade of economic stagnation.

"They cut, cut, cut and then what? I don't know, I don't know what will happen," said Giovanni Fulvio, a shopper at a northern Italian market. (Writing by Philip Pullella and Daniel Flynn; additional reporting by Gavin Jones, Daniel Flynn, Silvia Aloisi, Francesca Piscioneri, Giuseppe Fonte, and Antonio Denti; editing by Andrew Roche)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.