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06 September 2011

FT: Italy makes last-minute budget U-turn


Silvio Berlusconi's government caved in to pressure from bond markets and European partners late on Tuesday by announcing a last-minute U-turn to strengthen Italy's proposed austerity package.

The prime minister’s office announced that the highest value added tax band would be increased to 21 per cent from 20 per cent; that a 3 per cent wealth tax would be imposed on top earners; and that introduction of a later retirement age for women would be brought forward.

The amendments bolster a budget bill that had been criticised by both the European Central Bank and the European Commission and dismissed by bond market investors as inadequate. Prevarication in Rome had added to the sense of crisis gripping the eurozone over the sovereign debt levels of a widening circle of Member States, with Italy’s debt equal to 120 per cent of GDP considered too vast for an external bailout. Rather than restoring confidence, the latest changes reinforced the image of a government in disarray. The amendments represented climbdowns for all major figures involved in the messy budget process. Giulio Tremonti, finance minister, had opposed an increase in VAT; Mr Berlusconi had blocked a wealth tax; and Umberto Bossi, leader of the allied Northern League, had resisted pension changes.

The government announced it would curtail debate over the legislation by calling for a vote of confidence in the senate on Wednesday.

Full article (FT subscription required)



© Financial Times


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