Italy approves austerity measures

Italian Premier Mario Monti said Sunday his government of technocrats has approved a package of austerity and growth measures worth $40.53 billion US to "reawaken" the Italian economy and help save the euro common currency from collapse.

The measures include immediate cuts to the costs of maintaining Italy's bulky political class as well as significant measures to fight tax evasion, Monti told a news conference following a three-hour cabinet meeting.

As part of the political cost cuts, Monti said he would forego his salaries as premier and finance minister — a move he said was a personal decision and not meant as an example for other ministers in the government, which was formed 2 1/2 weeks ago after Premier Silvio Berlusconi's resignation under market and political pressure.

The package also includes measures to spur growth and competition, while aiming to stamp out rampant nepotism. But it also raises the retirement age and the number of years of service to qualify for a full pension, steps strongly opposed by unions, and imposes new taxes on Italians' private wealth, including their homes, boats and luxury cars, measures that conservatives have protested.

"We gave a lot of weight to fairness, we had to distribute some of the sacrifices but we took a lot of care to distribute them in a fair way," Monti said.

Monti will outline the measures on Monday in addresses to both houses of Parliament, which must approve them. Monti said he will appeal to lawmakers' sense of responsibility.

The Berlusconi government stepped down due to its failure to get tough measures through a fractious Parliament, which remains intact, meaning fault lines could easily reopen.

"A lot depends on how well or not we explain to the citizens what we are trying to do," Monti said.

The premier, an economist who once was an EU commissioner, has been under extreme pressure to come up with speedy and credible measures that will persuade markets to stop betting against the common currency. Italian borrowing costs have spiked, which could spell disaster if Italy is unable to keep up on payments to service its enormous debt of $2.57 trillion US, or 120 per cent of its GDP.

Unlike Greece, Portugal and Ireland, which got bailouts after their borrowing rates skyrocketed, the eurozone's third-largest economy is considered to be too big to bail out. An Italian default would be disastrous for the 17-member eurozone and reverberate throughout the global economy.

Deputy Economic Minister Vittoro Grilli said the measures passed will ensure that Italy's budget will be balanced by 2013 through a 2 per cent increase in value-added tax from the second half of 2012. Berlusconi's now-defunct government already raised the value-added tax from 20 per cent to 21 per cent.