Italy’s cabinet has approved a 45.5 billion euro ($62.2 billion) austerity budget, its second in weeks in a bid to calm investors, with measures including more taxes on high earners.
‘‘It’s 20 billion euros in 2012 and 25.5 billion euros in 2013,’’ Prime Minister Silvio Berlusconi told reporters after the government meeting on Friday.
He said the measures were in line with demands from the European Central Bank in return for massive support given to Italy’s bond markets this week.
‘‘This program goes in the direction of what the ECB recommended,’’ Mr Berlusconi said.
The 74-year-old centre-right leader said the plan included a 5 per cent tax for two years on people with an income of between 90,000 euros and 150,000 euros a year, and 10 per cent on those earning more than 150,000 euros.
‘‘My heart is bleeding,’’ Mr Berlusconi said, as the tax went against his election promise ‘‘never to put my hand into the pockets of Italians.’’
But he said the measures were ‘‘inevitable’’ and the situation ‘‘dramatic’’.
‘‘After concentrating on Greece, speculation was moving towards Italy,’’ he said, referring to panic sell-offs seen on Italian financial markets last week.
Finance Minister Giulio Tremonti said the measures would reduce the budget deficit to 1.4 per cent of output by 2012, and to zero by 2013.
‘‘We do not have any alternative,’’ Mr Tremonti said when asked whether the measures would affect Italy’s already weak growth.
The package now has to go before parliament for final approval.
‘‘Faced with an emergency, our country knows how to react,’’ junior finance minister Luigi Casero told TG4 news. ‘‘We will move as quickly as possible. We hope the approval will come at the beginning of September,’’ he said.
Pier Luigi Bersani, the leader of the main centre-left opposition Democratic Party, said the measures would hurt the working and middle classes, adding: ‘‘This austerity program does not resolve the problem.’’
A stock rally cleared the air before the government meeting, with the benchmark FTSE Mib index in Milan ending the day up 4 per cent.
Banks led the rally after the Italian market regulator imposed a temporary ban on short-selling for banking and insurance company stock.
The new austerity measures aim to help assuage jittery markets by returning Italy to a balanced budget in 2013 instead of 2014 as previously planned.
They come on top of a 48-billion-euro package agreed in July, when Rome first came under overwhelming pressure from investors.
Economists welcomed the measures but cautioned on their effect on growth. The new austerity program ‘‘goes in the right direction’’, said Fabio Fois, an analyst with British investment bank Barclays Capital. But he warned that the measures ‘‘risk having a negative effect on consumption by slowing down growth next year.’’
He said what was needed were ‘‘structural reforms to increase the growth potential and offer guarantees on debt reimbursement in the long term’’.
Italy’s economic growth rate has been at about one per cent for a decade. The ECB this week began an attempt to reassure investors that the eurozone’s third-largest economy will not be dragged into a debt spiral through massive purchases of bonds - an unprecedented move to rescue an EU founding member.
That helped reduce the difference between Italian 10-year government bonds and benchmark German bonds - an indication of greater investor confidence.
AFP