Milan: Prime Minister Silvio Berlusconi said Italy's planned 24.9 billion euros (Dh112.12 billion) of budget cuts over the next two years are "absolutely necessary" to defend the euro and protect Italy.
The measures are part of a European effort to convince investors the region can control budget deficits and shore up the euro, which has fallen 15 per cent this year. The package aims to reduce Italy's budget gap an additional 1.6 per cent of GDP to bring the shortfall within the EU limit of 3 per cent of GDP in 2012 from 5.3 per cent last year.
"The sacrifices requested are absolutely necessary to defend our currency," Berlusconi said at a press conference Wednesday night to explain the measures. "Defending the euro today means saving Italy's future."
Fallout from Greece's near default led to a surge in borrowing costs in southern Europe on concern about rising deficits in Portugal and Spain as well as Italy's ability to finance the region's biggest debt.
Wage freeze
EU leaders set up a 750 billion-euro financial lifeline this month to backstop the region and defend the euro, prompting Italy, Spain and Portugal to agree to additional cuts. Italy's measures include a 10 per cent budget cut for ministries, 4.5 billion euros in reduced transfers to regional governments, a partial amnesty on illegal building, a crackdown on tax evasion and a three-year wage freeze for civil servants.
The International Monetary Fund's executive board praised Italy's pledge to cut the deficit. Containing government wages "should remain a key element of the consolidation strategy", the board said in a statement.
European Central Bank Executive Board member Lorenzo Bini Smaghi said last year's deficit would have been just over 3 per cent if between 1998 and 2008 "salaries in the public sector had been in line with the ones in the private one", according to a letter published yesterday in Corriere della Sera. "The budget adjustment would have likely been more contained."
Berlusconi said that while public spending that accounts for about half of GDP needed to be scaled back, the measures also aim to combat tax evasion and the underground economy. Those steps include requiring the use of traceable means for any transactions over 5,000 euros.
