October 26, 2011 / 8:05 AM / 8 years ago

Struggling Berlusconi pledges reforms to EU summit

ROME (Reuters) - Italian Prime Minister Silvio Berlusconi presented European leaders on Wednesday with a hastily constructed package of economic reforms in response to an ultimatum demanding action to boost growth and cut Italy’s huge public debt.

It was not clear whether the leaders meeting in Brussels, who are highly skeptical about Berlusconi’s ability to deliver, would be satisfied by a series of promises of future measures to get Italy out of the firing line in the euro zone debt crisis.

Polish Prime Minister Donald Tusk told reporters in Brussels before the summit that the letter had made a good impression.

Berlusconi, in political trouble at home, had been caught between the EU ultimatum and the refusal of his Northern League partners in a center-right coalition to make more than slight concessions on pensions — a key plank of the reform program.

A “letter of intent” carried by Berlusconi to the summit, and seen by Reuters, promised a much delayed economic development plan by November 15 and a series of other measures to boost growth and ensure the budget is balanced by 2013.

They included a commitment to raise the pension age to 67 by 2026, and steps to cut red tape and improve conditions for business.

Berlusconi’s political position is so weak he has little room for maneuver. The 75-year-old premier, badly weakened by sex scandals, corruption charges and political setbacks, made no comment to reporters as he arrived for the summit.

Initial market reaction to a minimalist pension deal with League leader Umberto Bossi was not encouraging, with Italy paying the highest yield in more than three years on six-month treasury bills at an auction on Wednesday.


Tensions over the reform program broke into the open in Italy’s parliament, where opposition and government deputies exchanged blows and the sitting was suspended.

President Giorgio Napolitano and incoming European Central Bank governor Mario Draghi warned that Berlusconi’s promises must be followed by resolve to take painful measures to dig Italy out of a deepening economic crisis by cutting massive public debt and boosting stagnant growth.

The head of Italy’s biggest retail bank, Intesa Sanpaolo, said he was disappointed by the sketchy agreement reached between Berlusconi and Bossi on Tuesday, which provided for only a slight acceleration in raising the pension age from 65 to 67.

“In the situation we are in, I expected an economic program that would be agreed by everyone and not just unconfirmed suggestions to take to Europe. I am disappointed,” Corrado Passera told reporters.

Bossi refused point blank to agree to a more significant reform abolishing a system under which workers can retire early if they have paid 40 years of pension contributions.

An Italian diplomatic source told Reuters the summit’s final communique would specifically mention Italy.

The letter outlines Italy’s plan for reforms demanded by the EU as a condition for ECB buying of its bonds — vital to prevent Italy being overwhelmed by debt repayments.

Incoming ECB chief Mario Draghi said ideas outlined in Berlusconi’s letter must be implemented rapidly. Draghi, who is leaving Italy’s central bank to take up the new role, said the situation in Italy was “confused and dramatic.”

Napolitano, who has regularly worked closely with Draghi to try to stave off economic disaster in Italy, said in a speech in Belgium that anybody who wanted to govern the country must grasp the nettle of unpopular economic reforms.

“We can no longer dither over the categoric imperative of making a consistent and constant effort to lower our debt,” he said.


The euro zone’s number three economy is at the center of the debt crisis. It needs to issue over 600 billion euros in bonds in the next three years to refinance maturing debt.

Berlusconi’s office denied he had made a secret agreement with Bossi to resign at the end of the year but the League leader said he was pessimistic about the coalition’s survival.

Analysts say Berlusconi is unlikely to last beyond December or January and elections are expected in spring, a year ahead of schedule.

Berlusconi has until now repeatedly said he expects to serve out his term until 2013. But reports are circulating that, caught between demands for action on the economy and the obstinacy of the League, he may throw in the towel sooner.

Analysts say neither the League — where Bossi’s leadership is also under threat from within — nor Berlusconi’s PDL party wants a government crisis before the end of the year because that might tempt Napolitano to appoint a stop-gap government of technocrats to pass urgent reforms.

A delay would enable the center-right to keep control of the way the crisis plays out ahead of elections in the spring.

The center-left opposition is also in disarray and is thought to be reluctant to take responsibility at this point for highly unpopular austerity reforms.

Italy has a public debt of 1.9 trillion euros, equal to 120 percent of GDP, second only to Greece in the euro zone.

Italy's Prime Minister Silvio Berlusconi (L) talks with Greece's Prime Minister George Papandreou (R) at the start of an European Union summit in Brussels, October 26, 2011. REUTERS/Yves Herman

The impatience of euro zone leaders at Berlusconi’s repeated procrastination is sharpened by fears that a major debt crisis in Italy — much bigger than Greece and too big to bail out — would threaten the entire European project.

Economy Minister Giulio Tremonti has promised a package of reforms that would open up closed professions, cut red tape and raise revenue through steps such as privatizations and a new wealth tax, but the measures have been repeatedly delayed.

Additional reporting by James Mackenzie and Alberto Sisto, Giuseppe Fonte, Stefano Bernabei and Giselda Vagnoni; Editing by Kevin Liffey

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