May 26 (Bloomberg) -- Prime Minister Silvio Berlusconiâs government approved 24 billion euros ($30 billion) of budget cuts as part of a European effort to convince investors that euro nations can trim deficits and defend the single currency. The measures include a three-year wage freeze for civil servants and a crackdown on tax evasion, the government said in an e-mailed statement after a 90-minute Cabinet meeting last night in Rome. Berlusconi and Finance Minister Giulio Tremonti will hold a briefing on the plan today. âThis is an encouraging first step,â Raj Badiani, an economist at Global Insight Inc. in London, said in a research note. âHowever, we feel this should be a forerunner of a prolonged period of better fiscal management.â Italy follows Spain and Portugal in adopting additional budget cuts after European Union leaders this month set up a 750 billion-euro financial lifeline to back-stop the regionâs most- indebted nations. Fallout from Greeceâs near-default has led to a surge in borrowing costs in southern Europe and fueled investor concern about the survival of the euro, which has fallen 14 percent this year. The measures, worth 1.6 percent of gross domestic product, aim to bring Italyâs deficit within the European Union limit of 3 percent of GDP in 2012. http://www.bloomberg.com/apps/news?pid=20601087&sid=avVKLXv9tSTg&pos=2 PIIGS...
That's great. People should try that at home. "Hi Mr. Big Bank Rep. I've got good news. My projections show that I will get a 10% raise next year and my spendthrift wife has agreed to scale back spending so that our deficit (how much more we spend than I make) will shrink to just 3% of how much my whole family makes. Not immediately, of course. But we figure we'll be closer to making ends meet in 3 years, with my raise and all. So there's no need to foreclose. . . I mean who knows we might actually spend less than we make someday! I could get a string of 15% raises. Or win the Powerball! Stranger things have happened, you know."
Good news. Note they are cutting not "reducing the growth" like they do in the US: http://www.fxstreet.com/news/forex-news/article.aspx?storyid=5b696f14-4d20-4297-b001-7e3c879014f4 Oh wait. That was December 2008. My bad. Guess that didn't work out so well. http://online.wsj.com/article/SB10001424052748703341904575266732437861628.html?mod=fox_australian So they underwent the painful cutting process that would balance the budget in just three years. Then the debt got worse. But I'm sure that it's different this time.
Of course it didn't worked. Global crisis cut GDP by reduced export and percentage raised. But if try to view all the picture (not only government debts) you may notice that Italy is in better shape than most of other G8 countries. The sum of public and private debt is less than any other country (including USA, if you find 2009 data), it has the lower deficit, the higher primary balance and a huge savings rate by a traditionally wiser family and a banking system almost free of toxic assets (even if the latter is not completely true for local authorities defrauded by some foreign banksters). Just the government sub-standard behaviour is the culprit, but with some (few) signals of improvements, as budget cuts suggest. However, I'm not saying the whole world financial system is healthy, but only that Italy is sick as anyone else, surely not more as you seems to imply. And be aware almost all of italian debt is internal, i.e. net position is positive, italians have more savings than debts. For example, see this paper of Bank of International Settlements: http://www.bis.org/publ/work300.pdf?noframes=1 and ECB december bullettin, page 90 http://www.ecb.int/pub/pdf/mobu/mb200912en.pdf