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Italian government denies rifts over budget cuts

May 26, 2010

By Guy Dinmore in Rome, May 26, 2010

Italy’s centre-right government on Wednesday angrily denied reports of rifts between Silvio Berlusconi, centre-right prime minister, and Giulio Tremonti, finance minister, over the 24bn euro austerity package agreed by the cabinet on Tuesday night as the country’s main union warned it would consider strike action.

“Once again today many dailies are engaging in a real festival of lies, attributing words to the prime minister that he never uttered,” Paolo Bonaiuti, government spokesman, said in a statement.

As confusion continued over the details of the decree agreed by the cabinet, which released only outlines of the cuts, newspapers reported a serious split between Mr Berlusconi and his minister. “In these last days he has created a whole pile of problems for me,” the prime minister was quoted as saying by Il Giornale, a Milan-based daily which is part of the Berlusconi family media empire.

Officials said Mr Berlusconi and Mr Tremonti would explain details of the decree at a press conference scheduled for 6 pm on the finance minister’s return from an OECD meeting in Paris. The decree is to be signed into law by Giorgio Napolitano, president, on his return from Washington but then has to be approved by parliament to remain in force.

It remains to be seen how Mr Berlusconi intends to sell the austerity package to a sceptical public which had been previously assured that Italy remained immune to the dangers of contagion from the sovereign debt crisis in Greece.

Civil servants face a three-year freeze on their salaries, according to the cabinet statement, while workers approaching retirement will have to wait longer (up to six months according to press reports based on draft documents). The cutbacks, including lower salaries for ministers and parliamentarians, are accompanied by pledges of tougher action against tax evaders.

Guglielmo Epifani, leader of the main CGIL trade union federation, said strike action would be considered once full details of the package were made public. Two other main union federations were more cautious in their response.

“If I am a citizen earning a million euros a year thanks to capital gains, I don’t pay a single euro in the set of sacrifices,” Mr Epifani told La Stampa, a Turin daily. “I expected more equitable austerity measures. It doesn’t seem to me that is the case.”

Leaders of regional and local governments, told by Mr Tremonti on Tuesday that they have to make cuts of some 13bn euros over 2011 and 2012, are warning that essential services will be affected.

Mr Tremonti aims to bring the budget deficit under 3 per cent of GDP by 2012 from 5.3 per cent in 2009. The total two-year adjustment amounts to 1.6 percentage points of GDP. Italy’s deficit levels are relatively modest compared with its peers, but public sector debt – projected to exceed 118 per cent of GDP this year – is the highest in Europe.

Economists and market reaction signalled a cautious welcome of the planned cuts, despite the one-off nature of most of the expected measures. But there was also concern that the austerity package would dampen already depressed consumer spending and reduce the growth needed for Italy to escape its debt trap.

Gianfranco Fini, speaker of parliament and a critical ally of Mr Berlusconi, commented: “Our first worry must be that of not repeating the mistake of introducing measures that cut expenses
without offering policies of public support to economic growth, which in the past have resulted in a distortion to our economy.”

Mr Berlusconi – his ratings falling on the back of a major corruption scandal that resulted in the resignation of his minister of industry – has barely spoken about the austerity package to date.

Tito Boeri, an economist writing for the pro-opposition daily La Repubblica, said the emergency budget “would like to reassure the markets but risks giving the image of a country on its last legs”.

Enrico Giovannini, head of Istat, the national statistics institute, said the cuts risked damaging Italy’s slow economic recovery.

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