The World from Berlin 'Italy Is Burning and No One Is Putting It Out'

Italian Prime Minister Silvio Berlusconi and his ruling coalition have made a raft of changes to their proposed austerity package, causing many to doubt Rome's intentions. German commentators say that the country's future looks bleak.

Italian Prime Minister Sivlio Berlusconi has made changes to the proposed Italian austerity package.

Italian Prime Minister Sivlio Berlusconi has made changes to the proposed Italian austerity package.

With a players' strike currently occupying the thoughts of soccer-mad Italians, it's perhaps appropriate that Silvio Berlusconi has moved the goalposts over the debt-ridden country's austerity package. The Italian prime minister and his coalition have agreed to a raft of changes to the proposed budget, including scrapping a tax on the rich, in a move which has led to confusion in the financial markets and could well result in a confrontation with the European Central Bank.

Berlusconi and his allies issued a revision of the proposed austerity measures late on Monday following widespread public anger over the original plans. There were already more than 1,000 amendments by Tuesday morning. The changes include reducing cuts to municipalities, decreasing the amount of lawmakers and changing the way pensions are calculated, which would delay retirement for many Italians.

The Bank of Italy warned on Tuesday that the revamped austerity package must not result in a reduction to the original €45.5 billion ($65.9 billion) of belt-tightening measures, and said that the plan could send Italy into economic stagnation. The bank's deputy chief Ignazio Visco told parliament committees that he was hoping the response to the changes in the markets "isn't too penalizing." He also warned that regardless of the measures, growth might be less than 1 percent this year and even lower in 2012, meaning achieving a balanced budget might be even more difficult.

Widespread Tax Evasion

"In the current context, in which the costs of a possible deviation from the goals are very high, the total planned adjustments cannot be reduced," he said.

Berlusconi's allies have insisted the revised plan would help achieve a balanced budget by 2013, as demanded by the European Central Bank in return for buying up significant amounts of government debt. The original austerity measures had been announced on Aug. 12 and called for those earning above €90,000 ($130,000) annually to pay an extra 5 percent income tax over the next three years, while those earning over €150,000 would pay 10 percent. Unions and business lobbies had complained that they penalized honest taxpayers given the supposed widespread tax evasion practiced by the self-employed.

The ECB will certainly be keeping a close eye on the new austerity package to ensure its demand that Italy balance its budget in 2013 is adhered to, as well as making sure there is no decrease in the overall savings produced by the package.

German commentators on Wednesday were united in their scorn for Berlusconi's actions, arguing that the Italian leader is acting out of self-preservation rather than seeing the bigger picture.

The center-left Süddeutsche Zeitung writes:

"Two weeks ago, the cabinet in Rome agreed on a rescue plan for the struggling budget. Now Berlusconi and his guests (at a coalition summit the prime minister hosted) have torn it up beyond recognition. Unpopular measures like the tax on the rich were removed. The program is now peppered with empty details and window dressing, like the promised containment of tax evasion. If the financial markets had accepted the promises of the government in Rome, the pressure on Italy would have dropped long ago. Any chance that confidence will now grow can be ruled out."

"For Berlusconi it does not matter. He is interested only in political calculations. He does everything possible to avoid worsening the emaciation of his coalition. Pure parliamentary arithmetic allows his battered and clueless coalition to survive."

"The house is burning and nobody is picking up the fire extinguisher. As long as Berlusconi is in power, nothing will change that."

Conservative daily Die Welt writes:

"After investors questioned whether Italy was capable of carrying out reforms, Berlusconi had to prove his willingness to act. The prime minister is now showing, however, just how faithfully he will stick to these plans."

"Italy's government must count itself lucky that the European Central Bank (ECB) is supporting it with bond purchases. Without this help, the interest that the country must pay on its debt would already be more than 6 percent. Following Berlusconi's reform antics, they will now likely continue rising. In the face of this behavior, however, the rest of Europe needs to ask whether the ECB help is a mistake. Ultimately it is taking the pressure off Berlusconi, pressure which is apparently needed to force him to carry out reforms."

The Financial Times Deutschland writes:

"More than anything, it is becoming increasingly unclear how much Silvio Berlusconi's government wants to achieve the savings goals it set for itself. The message that the constant tampering with the savings plan sends out is devastating."

"The 'modifications' made by Berlusconi achieve nothing economically, but will unsettle investors because nobody knows how serious the government really is about saving. With the abandonment of a solidarity tax on the rich, the government has eroded the already weak social basis for its austerity package."

Financial daily Handelsblatt writes:

"It's hard not to fall into old prejudices upon hearing the news from Rome. The unpredictable Italians, extremely creative with their financial management, with big promises and small results -- the usual stereotypes seem to fit once again."

"The latest act -- for the time being -- is a new austerity package with new cuts, laboriously negotiated by the coalition partners. But how much of it will remain at the end after the budget goes through parliament is anybody's guess. The constitution dictates that the austerity package be made law by October, so there is still plenty of time for new negotiations and other trade-offs."

"This is not effective crisis management. It seems as if the authorities in Rome don't care about their image in the eyes of their European partners and international stock exchanges. At the presentation of the austerity package in parliament, premier Silvio Berlusconi himself spoke of attacks by foreign speculators on the Italian financial market. Ratings agencies, statistical agencies and analysts have long been keeping an eye on the lousy growth of the third-largest economy in Europe. Not to mention the fact that the ECB told the Italians in a letter that they had to carry out concrete measures such as labor market reform, liberalization and privatization before they would buy up government bonds on a large scale in order to reduce the impact of high yields."

The center-right Frankfurter Allgemeine Zeitung writes:

"Apparently, in the case of Italy, outside pressure is not great enough; to believe solely in the capacity of politicians to accept the facts and their willingness to brave corrective action is naïve. Now the Berlusconi government is again meddling with the austerity package -- and new funding shortfalls are opening up. It is scared of its own courage and does not want to scare away voters or upset anyone."

-- David Knight


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