Italy parliament votes to seal austerity budget

Reuters , Thursday 22 Dec 2011

Prime Minsiter Mario Monti says Italy will 'hold its head high again' after the parliament's confidence vote for tough austerity measures, including spending cuts, tax rises and pension reforms to revers the market collapse

Members of Northern League Party hold placards to protest against austerity package in the upper house of parliament in Rome December 14, 2011. The placards read, "It is not austerity package, it is a robbery" and "Stop taxes. (Photo:Reuters)

Italy will be able to hold its head high again in Europe after passage of a tough austerity budget in a confidence vote later on Thursday, Prime Minister Mario Monti said.

The package of spending cuts, tax rises and pension reforms is intended to reverse a collapse of market confidence which has pushed borrowing costs in the euro zone's third-biggest economy to untenable levels. Monti is expected to win the vote easily.

Addressing the Senate before the vote at around 1400 GMT, Monti said his technocrat government had been forced to push through the budget as fast as possible to fend off the crisis.

"Today this chamber concludes a rapid, responsible, complex job... on a decree that was passed in extreme emergency and that enables Italy to hold its head high as it faces the very serious European crisis," Monti told the upper house.

The prime minister, appointed only five weeks ago to face the crisis, said that after addressing Italy's massive debt in the 33 billion euro ($43 billion) budget, the government would turn its attention to the country's second economic millstone, a decade of near zero growth.

Investors turned their spotlight on these two problems in July, sending Italy's borrowing costs rocketing and putting it at the centre of a systemic euro zone debt crisis.

In a reference to serious tension in recent days between the government and trade unions over labour market reform, Monti said the issue would need more detailed dialogue with both them and employers before it was decided.

He also called on Italians themselves to buy government bonds to help solve the debt crisis.

Monti repeated a frequent refrain over recent days, that European policy must address growth as well as cutting debt.

Euro zone paymaster Germany has insisted that policy should concentrate on fiscal discipline despite fears by both indebted countries and economists that this will choke off essential growth if taken too far.


Monti replaced Silvio Berlusconi as prime minister last month and formed an administration of technocrats with broad parliamentary support to pass the so-called "Save Italy" decree.

Berlusconi's failure to tackle major reforms and restore market confidence brought Italy to the brink of economic catastrophe although market pressure has continued since Monti took power.

The government passed the budget in the lower house with a confidence vote last week to eliminate debate on dozens of amendments, many of them brought by the opposition Northern League, which was part of Berlusconi's administration.

League deputies blew referees' whistles and held up a banner reading "Robber Government" in an attempt to disrupt calling of the confidence vote in the Senate on Wednesday.

The votes in both houses allowed the broad swathe of parties supporting Monti to show they are backing him out of a sense of responsibility even if they are uneasy with specific measures.

Berlusconi's People of Liberty Party (PDL) is worried about tax increases and the centre-left Democratic Party about pension cuts, but they know they cannot sabotage the bill without unleashing an economic disaster including a possible default.

A suggestion by Welfare Minister Elsa Fornero this week that the government could take measures making it easier to fire workers caused a union outcry and she has since acknowledged she was "naive" to suggest it before more detailed discussion.

The severity of Monti's package has taken a toll on his popularity, which fell to 46 per cent from 61 per cent the previous week, according to a poll published in Corriere della Sera on Sunday.

Berlusconi has promised Monti full support but expressed fear that "the horse's medicine could kill the horse", a reference to widespread fears that the budget could stamp out fragile growth.

Monti says markets will eventually react positively to Italy's efforts, arguing that lower interest rates will help offset the effects of the austerity measures on growth.

While bond yields have come down, with the 10-year issue steadily below 7 per cent, the austerity package has failed to bring them back to more sustainable levels of about 5 percent.

Last week, ratings agency Fitch placed Italy and five other euro zone countries on a downgrade warning in the absence of a "comprehensive solution" to the debt crisis.

Italy's economy has expanded by an average of only 0.4 per cent per year for the past decade.

It shrank 0.2 per cent in the third quarter of this year, compared with 0.5 per cent growth in Germany and 0.4 per cent in France, and economists don't predict a recovery until the second half of next year.

The main employers' lobby, Confindustria, predicts a 1.6 percent decline in gross domestic product in 2012, four times worse than the government's forecast.

Monti's budget went into effect on Dec 4, when it was passed by the cabinet, but needed parliamentary approval within 60 days to become permanent.

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