At a time when many of Europe's countries are waist-deep in the global recession, Italy is beginning to take measures to try to solve its massive debt burden, estimated at about 120 percent of its gross domestic product.
On June 30, the cabinet approved a drastic budget cut, which Italy's president, Giorgio Napolitano, approved on July 6; it will now go to parliament for debate. The plan is to slash 48 billion euro from the budget over the next three years, more than the minimum amount set by the European Union.
‘For the current year, 2011, there is a need to maintain cuts of two billion euro,' Economy minister Giulio Tremonti told the press. ‘I am certain that the desired objective of 3.9 billion will be reached. In 2012 there needs to be a correction equal to six billion euro, which will be added to everything done in past years.' The largest cuts and savings will be realized through increasing taxes on bank trading activity and high-consumption cars, freezing pay for civil servants and creating a new levy on stock-market transactions. Local governments are also projected to receive 9.7 billion euro less through 2013-2014. However, income taxes will decrease, which is in accordance with Tremonti's desire for a stronger focus on taxing sales rather than individual incomes.
Tremonti has had much support recently for his fiscal prudence, especially after the financial crises in Greece, Ireland and more recently Portugal.
The opposition's main concern is that the cuts will not be implemented soon enough: many will not take affect for another two years. ‘The budget leaves a hole in the 2013-2014 period ... which is a time bomb,' said Pier Luigi Bersani, leader of the Democratic Party. ‘It will all turn into cuts in social services.'
The Italian government is feeling additional pressure from the bond market. Ratings bureaus Moody's and Standard & Poor's are threatening to downgrade Italy's credit rating, which has sparked a sharp rise in the interest rate of Italy's 10-year bonds.
Many analysts believe Italy can eliminate its considerable budget deficit in a short time by privatizing three 100-percent state-owned companies: public broadcaster RAI, the national railway group Ferrovie dello Stato and Poste Italiane. According to Bernardo Bortolotti, founder of the Privatization Barometer nonprofit research group, Italy could raise up to 30 billion euro from selling these assets. Do you think Italy should sell off the country's public assets to reduce its massive debt? Email email@example.com with your thoughts.