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Italian report Italian report
by Euro Reporter
2011-09-03 07:31:15
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Berlusconi hangs on amid cuts and sex sagas

Silvio Berlusconi’s exasperated denunciation of Italy as “this shitty country”, emblazoned across newspapers on Friday, may yet haunt the corridors of Brussels and Frankfurt, judging by reactions to his government’s draft budget, designed to save Italy’s perilous finances and even, ultimately, the euro. Italy’s billionaire prime minister, enmeshed in the latest twist of a sex scandal, has sought to laugh off the comments which were caught in an intercepted telephone conversation with a former newspaper editor whom prosecutors suspect was involved in blackmailing Mr Berlusconi for more than half a million Euros. But the “jest”, and the prospect of another damaging judicial inquiry to add to the prime minister’s three current trials, have undermined Mr Berlusconi’s already dwindling authority as his fractious centre-right coalition labours to impose a tough austerity package on a stumbling economy.

Pressure was mounting on all fronts after Giulio Tremonti, finance minister, cobbled together the latest compromise version of the budget late on Thursday, which is to be debated in parliament next week. The package relies heavily on a renewed crackdown on tax evasion to reach the goal demanded by the European Central Bank of a balanced budget by 2013. Jean-Claude Trichet, the ECB president, urged Italy to deliver on promises made in early August to launch structural reforms and cut spending.

 “It is therefore essential that the objectives announced for the improvement of public finances be fully confirmed and implemented,” he said in an interview with Il Sole 24 Ore, Italy’s main business daily. Continued ECB support by buying Italian bonds on the open market has been crucial to keep Rome’s funding costs on its €1,900bn ($2,700bn) debt at manageable levels without recourse to an outright EU bail-out. But yields on Italian bonds rose for a 10th consecutive day on Friday, sending the spread over German Bunds to more than 320 points, the highest since August 8 when the ECB started emergency purchases. Costs to insure Italian debt against default rose to a record high.


Italy urged to pin down austerity package

International policy makers and economists warned Italy's government that its recent flip-flopping on a €45.5 billion ($64.89 billion) austerity plan risks fuelling new market concerns over the economic and political stability of the euro-zone's third-largest economy. "The lack of clarity... may resurrect a sense of mistrust regarding Italy's ability to take steps aimed at faster growth and balancing of its public finances," Mario Monti, Italian economist and former European commissioner, told reporters during a conference here hosted by the Ambrosetti think tank. "There's an urgent need for clear and clearly announced measures."

The centre-right government of Prime Minister Silvio Berlusconi has for weeks been working on a package of measures aimed at balancing Italy's budget and breathing new life into the country's anaemic economy. The government hopes to have a definitive plan approved by mid-September, but so far several measures have been announced and then revamped several times in the wake of opposition by unions and members of Mr. Berlusconi's own coalition. For example, the government last month first said it would reach a balanced budget by 2013, in part by levying a 5% tax on taxpayers who earn more than €90,000 a year, and a 10% one on those earnings above €150,000. Days later, those proposals were dropped. Similarly, a plan to change pension payment rules was put forward and then scrapped.

The austerity plan is key to restoring market confidence in Italy. Earlier this summer, the euro-zone's sovereign-debt crisis washed up on Italy's shores, as investors fretted about the country's huge debt—which is 120% of gross domestic product. Italy's borrowing costs have kept spiralling up, reaching their highest level since the introduction of the euro. On Friday, Italy's 10-year government bond yielded 5.237%, which was 0.23 percentage point wider on the day versus the benchmark 10-year German bund, according to Tradeweb. The five-year CDS spread on the country's bonds widened 0.17 percentage points, to 4%, above its record closing level of 3.85%, according to Markit. "Financial markets, domestic and foreign investors worry about the credibility of Italy's economic policy," Nouriel Roubini, a leading U.S. economist, told reporters. "There has been a concern especially internationally that the leadership of the country is damaged and in spite of the policy action undertaken there is not enough policy credibility because there is political uncertainty."

Mr Roubini said one solution would be to have a new government—headed by an economist or other non-political official—run the country for some time. "We're seeing disorder and an insufficient ability to overcome crossed vetoes that is paralyzing us and is wasting our country's credibility and reliability," echoed Intesa Sanpaolo bank chief executive Corrado Passera. The mood at the conference—which yearly gathers bankers, politicians and economists—was glum, with many participants blaming political inaction for a worsening of the international economic situation. Mr. Roubini, in particular, said that chances of a recession in the world's richest countries have increased. "There's more than a 50% probability that by next year we're going to have a recession in many of the advanced economies," he said, though he added that the global economy will keep growing on the back of strong expansion in emerging markets. Zhu Min, deputy managing director at the International Monetary Fund, was one of the few to strike a more positive note. The U.S. economy remains a big question mark, he said in remarks made during a closed-door session at the conference, according to people present at the session. However, Germany—the euro zone's largest economy—will keep growing, as will emerge markets. The situation is difficult, "but there's hope," said Mr. Zhu during the session, according to the people present.


Italian employers pan plans to curb tax evasion

Italian employers lobby Confindustria on Friday criticized the government's moves to curb tax evasion in its austerity plan, saying they would be ineffective and would hit honest companies. The government has made frequent changes to the 45.5 billion euro (39.8 billion pound) plan since it was approved by the cabinet in mid-August, and its latest amendments presented in parliament this week aim to garner considerable resources from a crackdown on tax dodgers.
Economy Minister Giulio Tremonti said he had explained the new measures on Friday to Olli Rehn, European economic and monetary affairs commissioner. Proposals include possible prison sentences for those convicted of dodging more than 3 million Euros in taxes; seeking more detailed tax returns; offering incentives for town councils to help unearth tax dodgers; and cracking down on bogus companies used for tax fraud.

Italy's shadow economy is estimated to account for at least 22 percent of output, second only to Greece in the euro zone, and unpaid taxes amount to some 120 billion Euros every year. However, Confindustria, which on Thursday blasted the overall austerity program as "weak and inadequate," said the curbs on tax evasion were "rough and ready" and would have to be rewritten. "They are not effective towards the goal of a serious fight against tax evasion, and they risk penalizing virtuous companies," it said in a statement. In particular, it said a proposal to consider companies that make losses for three years to be "not operative" and therefore probable instruments of fraud would affect many honest companies that had simply been hard hit by the recent recession.

The employers' lobby said it was "amazed" the government had not considered its own suggestion to impose legal restrictions on the use of cash for transactions above 500 Euros, which it said would be far more effective in fighting tax dodgers. In a conversation on Friday afternoon, Tremonti illustrated to Rehn that the government aimed to gather about 700 million Euros in 2012 and 1.6 billion Euros in 2013 with the new measures against tax evasion." Tremonti said they would consist of "a radical change in strategy ... a fight that will not only involve repression but also prevention," the treasury said in a statement. Measures against tax avoidance were largely absent from the original austerity plan and were added to make up the shortfall after the government scrapped a tax on high earners and plans to raise the retirement age in the face of widespread protests. Curbing endemic tax evasion is crucial to Italy's economic prospects, but analysts have learned to be sceptical of revenue estimates from promises to crack down on the problem, because such pledges have proved empty for decades. Such scepticism is all the greater because Prime Minister Silvio Berlusconi has passed numerous amnesties for tax dodgers in the past, has repeatedly said if taxes are too high then evasion is justified, and is himself on trial for tax fraud.

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Emanuel Paparella2011-09-03 12:00:56
Indeed, there is a sever deficit in Italy and most people assume it is financial. In reality, there is a more dangerous deficit and it is ethical as Carlo Sgorlon pointed out in his famous essay "Il Paese dei furbi" [the country of the shrewds] and it is such a deficit that will bring down govenment and nations and even empires, to wit the Roman Empire.

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