Italy’s Senate may approve Prime Minister Silvio Berlusconi’s revised 45.5 billion-euro ($63.7 billion) austerity package in a confidence vote after bond yields surged amid concern the government may weaken the plan.
Senators will meet at 9:30 a.m. Wednesday in Rome to discuss and cast votes on the amended package, which will raise the value-added tax rate by one percentage point to 21 percent, introduce a 3 percent levy on incomes over 300,000 euros a year and increase the retirement age of women in the private sector from 2014. The vote may pave the way for final approval later this week by the Chamber of Deputies.
The measures were approved at a Cabinet meeting in Rome Tuesday after Italians took to the streets in a general strike to protest the plan, and following weeks of bickering that stoked concern among investors and European leaders that Italy may struggle to tame Europe’s second-biggest debt burden. The confidence vote was forced by the “seriousness of the global financial crisis,” Berlusconi’s office said in a statement.
“This government only knows how to lie,” said Pier Luigi Bersani, leader of the main opposition Democratic Party, in an e-mailed statement. “The idea is always the same: offload the weight of the budget cuts on the masses and shield the rest.”
The premium investors demand to hold Italian 10-year bonds instead of benchmark German bunds dropped to 365 basis points yesterday, after soaring to 371 basis points the previous day. That was the highest since before the European Central Bank started buying Italian bonds on Aug. 8 after Berlusconi pledged to accelerate the austerity measures.
Spain is “worried” that Italy is contributing to market instability by wavering on austerity, Development Minister Jose Blanco told Telecinco television yesterday. German Chancellor Angela Merkel and European Union President Herman Van Rompuy agreed at a meeting in Berlin late on Sept. 5 that distressed euro-area countries must swiftly implement austerity pledges, said a German official who asked not to be identified because the talks were private.
The previous austerity package, the second in a month, was announced on Aug. 5 to convince the ECB to buy Italian bonds after contagion from the region’s debt crisis sent the 10-year yield to a euro-era record. The plan set a goal for balancing the budget in 2013, rather than an original target of 2014.
The government later overhauled the package, bowing to political pressure from allies and stoking concern that it was backsliding on its pledges. Last week, Berlusconi dropped an original version of a “solidarity tax” on incomes of more than 90,000 euros a year, trimmed funding cuts to regional governments by around 1.8 billion euros and scrapped a measure to change pension-payment rules.
Bank of Italy Governor Mario Draghi, who will become ECB president on Nov. 1, said the central bank’s bond buying is “temporary” and should not be taken for granted by euro-region member states. The purchases “cannot be used to circumvent the fundamental principle of budgetary discipline,” Draghi said, according to the e-mailed text of a speech in Paris on Sept. 5.
Tuesday’s eight-hour walkout by CGIL, Italy’s biggest union, disrupted travel and manufacturing as protests attracted as many as a million people across Italy, according to the union. Fifty-eight percent of employees stayed off the job, the union said in a statement. Fifteen percent of workers at Fiat SpA took part in the strike, the nation’s biggest manufacturer said by e-mail.
The European Commission welcomed the new fiscal measures announced by the Italian government, saying in an e-mailed statement they “confirm the determination of the Italian authorities to meet the agreed targets of deficit and debt reduction.”
The commission, the EU’s Brussels-based executive branch, said it was urging “swift adoption of the adjustment package in a spirit of national cohesion and solidarity.”
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