Prime Minister Silvio Berlusconi vowed Wednesday to raise 5 billion euros ($8 billion) annually from asset sales, increase the retirement age and relax labor laws to convince European leaders Italy can reach its budget goals.
“We are aware of the need to present a comprehensive plan of reforms,” Berlusconi said in the letter that he presented to European Union leaders at a summit in Brussels. “We are aware that our debt is too high and our growth too limited.” The asset-sales plan will be completed by Nov. 30, he said.
The letter of intent fell short of the comprehensive plan European leaders had sought. Bickering within his Cabinet this week over pensions and other issues prevented the premier from complying with EU requests to deliver a blueprint to boost growth and tackle the euro-region’s second largest debt at the Brussels summit.
The pressure on Italy underscored a push by leaders to prevent the Greece-fueled debt crisis from swamping the third- biggest euro economy and piling risks onto France and Germany. Policy makers, pressed by politicians and investors around the world, are struggling to devise a plan that persuades markets they can stamp out the contagion.
In the letter Berlusconi pledged to increase the retirement age to 67 years by 2026, from about 65 years currently for men. The premier pledges to overhaul labor market laws in a country where most young workers have no job security and many older workers can’t be fired. The letter did not give specifics about asset sales, though achieving the target of 5 billion euros of revenue a year will have little impact on a debt of almost 1.9 trillion euros, or almost 120 percent of gross domestic product.
Apart from the pension change and asset-sale goal, the 14- page letter contained few new proposals. Berlusconi did present a calendar for implementing austerity measures adopted last month that aim to balance the budget in 2013.
Berlusconi said in the letter that Italy had always honored its commitment to the EU and signaled that he was prepared to adopt additional budget measures should economic conditions deteriorate. He defended his government’s handling of the economy, saying Italy’s budget deficit of 4.6 percent of GDP last year was in line with Germany’s and that the country already had a primary surplus that would help bring down the debt from next year.
Economic growth in the euro area’s third-biggest economy has lagged behind the European average for more than a decade, complicating efforts to reduce the debt, even with a balanced budget in reach. The European Central Bank pushed Italy to focus on growth in a letter in early August demanding more austerity and debt reduction.
In response, Berlusconi’s Cabinet on Aug. 5 passed by decree an austerity plan that aimed to balance the budget in 2013. The announcement of those measures prompted the ECB to begin buying Italian bonds on Aug. 8, helping bring yields down from euro-era records. Two months of bickering over implementing those measures and coming up with a plan to spur growth, have led bond yields to creep back up, and the country’s 10-year bond now yields almost 6 percent, compared with the Aug. 5 peak of 6.4 percent before the ECB started backstopping the debt.
Berlusconi held several rounds of crisis talks with top ministers this week in a bid to pass a growth plan through his Cabinet. He held talks late into the night yesterday with Umberto Bossi, leader of the Northern League party and his key coalition ally, to secure the agreement on boosting the retirement age. To secure Bossi’s support, Berlusconi agreed to resign in January and hold early elections, newspaper la Repubblica reported. A government spokesman denied the report.
The political gridlock is contributing to a jump in borrowing costs. The treasury paid 3.535 percent Wednesday at a sale of 182-day bills, the highest offered on similar-maturity debt in three years. Italy faces almost 200 billion euros ($279 billion) in maturing bonds next year and more than 100 billion euros in short-term debt coming due. Italy pays almost 4 percentage points more than Germany to borrow for 10 years.
The initiatives Italy plans to take “need to be done swiftly and in a concrete way,” incoming European Central Bank Governor Mario Draghi said Wednesday in a speech in Rome.
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