Italy gov't meets to approve balance budget measure

[August 12, 2011]  ROME (AP) -- Premier Silvio Berlusconi's government is holding an emergency meeting Friday to approve new measures to balance the budget by 2013 and calm market concerns over Italy's public finances.

Rome passed a euro70 billion ($99 billion) austerity package last month, but the government has said the financial situation has deteriorated significantly since then. Under intense pressure from the European Central Bank and other eurozone leaders, the government agreed to bring forward its goal of balancing the budget to 2013 instead of 2014 as originally planned.

It held urgent talks overnight at Berlusconi's Rome residence to hammer out the measures.

Finance Minister Giulio Tremonti told lawmakers Thursday that possible measures include privatizing local services, raising the tax on capital gains, immediately raising the retirement age for women in the private sector, and relegating nonreligious holidays to Sundays to increase productivity. He is also seeking to ease Italy's rigid labor-market laws and reduce the so-called costs of politics, or the ruling elite's generous salaries and perks -- not just in Rome but in local governments -- that have enraged Italians.

Berlusconi also has promised to come up with structural reforms to encourage investment and promote growth. In exchange, the ECB has been buying Italian bonds on the secondary market to hold down borrowing costs threatening to topple Italy's notoriously high public debt.

The government must try to stimulate Italy's stagnant economy -- which is expected to grow only by about 1 percent this year. And while Italy's debt is among the highest in the eurozone -- at nearly 120 percent of GDP -- poor growth is a key factor hindering Italy's ability to improve its public finances.

Italy's Central Bank on Friday said public debt topped euro1.9 trillion for the first time in June.

Tito Boeri, a noted economist, said the measures needed to be better-conceived than the previous package -- since the deteriorating economic situation makes the correction more difficult -- and more balanced to win broad acceptance.

"The cardinal rule must be that of fairness," Boeri, a professor at Milan's Bocconi University, wrote in La Repubblica, adding that the earlier austerity meausures put twice the burden on low- and mediaum-earners as on the richest 10 percent of the population.

The government has been holding feverish talks ahead of the Cabinet meeting, scheduled for Friday evening, in an effort to put the measures into force by decree before the traditional mid-August vacation when much of Italy shuts down. It has also been meeting with business leaders and unions.

Responding to increasing market nervousness, last week members of key lawmaking committees were called back from its summer recess. And the full houses of Parliament might reopen in August, ahead of schedule, because although government decrees become effectively immediately, they still need to be converted to law by Parliament within 60 days.

Tremonti's presentation to lawmakers Thursday failed to convince some of his own allies, a sign of possible rifts within the coalition. The opposition accused Tremonti of being too vague, and insists Berlusconi must resign.

Italian borrowing costs remained way below the levels they struck last week before the European Central Bank intervened in the markets to get them down. The yield on the 10-year bond is below 5 percent as against over 6 percent last week. The fall now makes Italy's servicing of its debts more manageable.

[Associated Press; By ALESSANDRA RIZZO and COLLEEN BARRY]

Barry contributed from Milan.

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