Italian parliament unites to pass key reforms
Italian prime minister Silvio Berlusconi wins confidence votes for his austerity plan
In what is being seen as an historic moment, Italian deputies in parliament have set aside their differences to vote in favour of a €48bn austerity package designed to balance the country’s budget by 2014. The measures were voted through the Senate yesterday and formally accepted this evening.
Embattled Italian prime minister Silvio Berlusconi had to use the confidence vote mechanism to cut short debate and gain backing for the government’s measures. Long-running sex and corruption scandals and in-fighting between the governing coalition’s members have left Berlusconi’s popularity at a record low. The austerity measures include a freeze on civil servant wages, regional funding cuts, reductions in family tax benefits and a raise in the retirement age.
But the Chamber of Deputies agreed to pass the emergency measures in recognition of the need to calm increasingly frenzied global markets, which were dumping Italian securities. In particular, rating agencies were poised to downgrade Italian government debt, a move that would have complicated significantly its already difficult position as one of the largest debtor nations in the Eurozone and the third largest economy.
Public debt is at record levels of 120% of GDP, with growth at 1%. Yields on Italian 10-year government bonds hit a 14-year high of 6.02% on July 12 before easing to 5.7% on Friday, while spreads over German bonds increased to more than 300 points.
Mario Draghi, governor of the Bank of Italy and incoming European Central Bank president, said the plan is “an important step in strengthening the public accounts”. But doubts remain about the government’s ability to put the reforms into effect. Fitch Ratings described the package as “an ambitious fiscal consolidation plan”. However, Fitch warned that the package would have to be implemented, if Italy’s sovereign credit profile and rating is to remain at AA-.
David Riley, Fitch’s head of global sovereign ratings, said: “The sharp rise in Italian and other euro zone government bond yields in recent weeks reflect a crisis of market confidence in the European policy response to the euro zone debt crisis, rather than deteriorating sovereign credit fundamentals.