Italy strikes as race to pass austerity starts

Reuters , Tuesday 6 Sep 2011

Italian workers respond to calls of union to strike, putting pressure on parliamentarians discussing austerity measures the brunt of which would arguably be laid on the poor

People march through central Milan, Italy, during a general strike Tuesday, (AP).

Workers across Italy went on strike on Tuesday as the centre-right government of Prime Minister Silvio Berlusconi scrambled to secure parliamentary backing for austerity measures vital to keep European Central Bank support.

The eight-hour strike called by the CGIL, Italy's largest union, was expected to disrupt public transport including air traffic, underlining a sense of emergency in the euro zone's third largest economy.

Federico Ghizzoni, chief executive of Unicredit, Italy's biggest bank said Europe needed to decide whether it wanted to retain the single currency or "give up".

"This is a test," he told a banking conference in Frankfurt, calling for a more decisive approach to the crisis.

Tuesday's strike, called to protest the 45.5 billion euro austerity measures, coincides with the opening of a debate in the Senate which the government hopes will see swift approval before the package moves to the lower house.

Many of the measures originally criticised by unions have been dropped but the protests brought out simmering anger at the burdens imposed on ordinary Italians by more than a decade of economic stagnation.

"It's wrong to target people like me, I am on the poverty line. I only make 1,000 euros a month," said Marco Vacca, a 49 year-old employee of an industrial laundry who joined a rally of thousands outside Rome's central rail terminal.

As pressure has risen on Italy to cut its 1.9 trillion euros of public debt, Rome's borrowing costs have risen steadily, despite intervention by the ECB to hold yields down by purchasing Italian bonds.

The premium investors require to hold Italian paper rather than benchmark German bonds reached 366 basis points by mid-morning on Tuesday, more than 20 points above the equivalent Spanish spread.

ECB patience has been severly tested by the chaotic manner in which the Berlusconi government has handled the austerity package and the absence of concrete steps to meet his pledge to balance the budget by 2013.

On Monday, Mario Draghi, who takes over as head of the ECB in November, stepped up calls for Italy to act, delivering a pointed warning that the central bank's willingness to continue buying bonds "should not be taken for granted".

Trade union protests were also planned in Spain, where parliament is debating inserting a German-style debt brake into the constitution to give greater force to deficit-cutting measures designed to regain financial market confidence.

Spanish unions called evening protest marches to denounce a fiscal rule they say will result in cuts to social spending and affect the poorest in society. The governing Socialists and the conservative opposition People's Party, favourite to win a Nov. 20 general election, both back the legislation, which helped convince the ECB to start buying Spanish bonds last month.

In Italy too, the austerity measures have rare bipartisan support. Tuesday's Senate debate was due to start at 4.30 p.m. (1430 GMT) with upper house approval possible as early as Wednesday after the centre-left opposition Democratic Party said late on Monday it was willing to allow a swift vote.

The package would then move to the lower house before final approval, originally expected by Sept. 20.

Underlining the growing political gravity of the crisis, the head of state, President Giorgio Napolitano said in a statement on Monday that markets had sent an "alarming signal" that urgent action was needed to restore faith in public finances.

He said there was time to insert measures "capable of reinforcing the efficiency and credibility" of the austerity package passed in parliament last month. It is currently undergoing revision.

Business daily Il Sole 24 Ore said an increase in VAT sales tax, a measure so far resisted by Economy Minister Giulio Tremonti, may be added to the package. Other possibile changes mooted in the press include a possible delay to retirement ages and some form of tax on high earners.

Italy's European partners have been watching with growing concern as government wrangling has overshadowed the package. German Chancellor Angela Merkel told members of her party on Monday that the situation in Italy was "extremely fragile".

Italy has wrestled with sluggish growth and one of the world's highest levels of public debt for years but a modest deficit, high private savings and a conservative banking system had kept it largely on the margins of the crisis until July.

Berlusconi's government, which until recently boasted of keeping Italy out of the crisis, has struggled to build a defence against the market pressure, hampered by deep divisions in its own ranks over tax and pension issues.

Measures ranging from a tax on high earners, retirement delays for some university graduates, cuts to local government funding or the abolition of small town councils have been proposed, then dropped with bewildering speed.

In their place, Tremonti is putting his faith in stepped-up measures to combat tax evasion despite a long history of failure by successive Italian governments.

Berlusconi and Tremonti have appeared increasingly at odds over the package, heightening speculation of a possible political crisis which could bring down the government.

Further complicating the picture, Berlusconi has also been hit by a new legal case, following the arrest of a businessman last week on charges of attempted extortion of the premier in connection with a two-year-old prostitution scandal. 

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