The government of Prime Minister Silvio Berlusconi is scrambling to modify the recently-announced economic reform program aimed at meeting European Central Bank (ECB) requirements, after outrage from both politicians and the public jeopardize the program.

The Italian government met yesterday (August 21) to revise the existing economic program ahead of senate consideration of the package this week. Prime Minister Berlusconi announced 45 billion euros in austerity measures last week that include increases in taxes and deep cuts in certain sectors of public spending. The new plan includes a three-year “solidarity tax” on individuals who earn more than 90,000 euros, and cuts jobs and public spending at local levels.

If passed, the program will close local governments in towns with less than 1,000 citizens and introduces a constitutional amendment mandating a balanced budget. Both members of the government coalition and the opposition have expressed dissatisfaction with the plan. Opponents of the plan are particularly concerned about the solidarity tax and lack of provisions to grow the economy. They also are upset about lack of cuts in the federal government and failure of the plan to address rampant tax evasion. The public also is angry over the proposal and there have been calls for parliament to instead cut its numbers by half and to sell state real estate such as villas for members of parliament. The largest union in Italy is threatening a general strike in protest of the package.

Analysis

Italy’s government cohesion and public patience are starting to crack under the weight of stiff austerity measures and the sheer amount of work required to mend the economy. Coalition partners questioning government plans, growing dissent by the opposition, and public dissatisfaction combined with apparent government willingness to revise the reform package under pressure raises serious questions about the ability of the government to implement real economic reform. For its part, the opposition and the public will see any alteration of the plan as a victory and that success could reinforce the idea that raucous opposition will push the government to moderate austerity plans. This could lead to increases in public protests and demonstrations and stronger resistance to future reform packages.

Some form of the current reform package is likely to pass to meet ECB requirements over the next 60 days, giving Rome some breathing room from lenders Government officials are likely to make some changes to the current package in order to calm immediate tensions, but significant alterations are unlikely.

Lisa M. Ruth is a Senior Analyst with LIGNET.com, a new Washington-based global intelligence and forecasting site. She is a former CIA analyst and officer and is currently Managing Partner of C2 Research, a boutique research and analysis firm in West Palm Beach, Florida. Ms Ruth also is Vice President at CTC International Group, Inc., a private intelligence firm.