ROME Italy's new economy minister Fabrizio Saccomanni plans to cut taxes and public spending and lower borrowing costs, according to an interview published on Sunday in daily la Repubblica.
Saccomanni, formerly deputy governor of Italy's central bank, was sworn in as minister on Sunday as part of Prime Minister Enrico Letta's new coalition cabinet, a mix of center-right and center-left politicians and technocrats like Saccomanni.
Saccomanni told Repubblica he wanted to "restructure the state budget" to support companies and low-earners, while cutting some unproductive public spending to create resources needed to reduce taxes.
The confidence generated by these measures could allow Italy's borrowing costs to fall sharply, he said.
The interest rate differential between Italian benchmark bonds and their safer German equivalent benchmark bonds, often seen as the main indicator of investor confidence could fall to 1 percentage point or less from the current level of almost 3 points, he said.
In an interview with few direct quotes, Saccomanni said it was vital to remove political uncertainty and instill confidence to kick-start Italy's recession-bound economy.
To do this, he said he would propose a "pact" between banks, firms and consumers to boost lending, investments and consumption. He did not elaborate on what this pact could entail.
Saccomanni faces a tough task to revive the economy without allowing public finances to go off the rails and the political risks were spelled out on Sunday by a close ally of center-right leader Silvio Berlusconi whose support Letta depends on.
Renato Brunetta, lower house leader of Berlusconi's People of Freedom party (PDL) said the government would fall unless Letta promises in his maiden speech to urgently abolish an unpopular housing tax and repay the 2012 levy to taxpayers.
"If the prime minister doesn't make this precise commitment we will not give him our support in the vote of confidence," Brunetta told daily Il Messaggero.
Brunetta, who was himself a candidate for the post of economy minister said that during negotiations for the formation of the government Letta had "given his word" on the abolition and repayment of the tax, which would leave an 8 billion euros hole in public accounts.
Moody's analyst Dietmar Hornung said Italy's fiscal "maneuver space" was quite limited after its debt-to-GDP ratio had further increased from levels that were already high.
In an interview with Il Sole 24 Ore on Sunday, Hornung, who oversees Italy, said Rome needed to boost its competitiveness by reforming its labor market, although he said prospects of a progression in economic reforms were "quite weak".
On Friday, Moody's kept Italy's sovereign debt rating at Baa2 thanks to the country's reasonably low current cost of funding and its primary surplus but kept its negative outlook.
(Writing by Gavin Jones, additional reporting by Danilo Masoni; Editing by Elaine Hardcastle)