Italy: Italian government agrees austerity measures with European authorities
September 2, 2011
The Italian government stepped up measures towards fiscal consolidation, in order to quell market concerns regarding the need of a bailout by European economic authorities. At the 26 October Euro Summit in Brussels, Italian authorities presented a letter of intent announcing an agenda of structural reforms aimed at reducing budget spending and boosting the country's competitiveness. The plan includes increasing the retirement age to 67 years for both men and women, looser labour market regulation to make layoffs easier and a program of public asset dismissals worth EUR 15 billion over the next three years. In addition, the Italian government agreed to draft a set of growth-enhancing measures aimed at improving the country's growth prospects by 15 November, although only a few details were provided regarding the actions to be taken. Existing tensions among the governing majority do not bode well for the Berlusconi administration's ability to implement the measures agreed upon with European authorities, as the government lacks the necessary power base to push unpopular reforms. During government consultations on the eve of the 26 October Euro Summit, the Northern League party - the main ally of Berlusconi's People of Freedom Party (PdL, Popolo della Liberta) - had roundly opposed raising the retirement age as required by EU officials, and agreement between coalition allies was reached only a few hours before the Euro Summit. Events taking place earlier in the month had already proved the fragility of the existing coalition. On 12 October, the Chamber of Deputies failed to approve the government's 2010 budget, after earlier approval by the Senate. Key to the result was the absence of Economy Minister Giulio Tremonti and of other important elements of the governing majority during the vote. Failure to approve the budget triggered a confidence vote on 13 October, which the Berlusconi administration won by the narrowest of margins. Adding to the bleak picture, international rating agencies Moody's and Fitch both downgraded the country's credit rating. On 4 October, Moody's cut Italy's rating by three notches, to A2 from Aa2, while Fitch followed suit a few days later, on 10 October, downgrading Italy's sovereign debt to A+ from AA-.
Author: Armando Ciccarelli, Head of Data Solutions