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International News Title: Europe Alarmed as Italy’s Austerity Plans Unravel ROME — Just a few weeks ago, Prime Minister Silvio Berlusconi announced a sweeping 45.5 billion-euro package of austerity measures to help Italy stave off a sovereign debt crisis. Today, those measures are unraveling, subject to so much backtracking and political wrangling that European leaders are raising the pressure on Italy to deliver as promised. Every day, modifications to a wide array of steps — whether tax increases, pension spending or cuts to local government — appear and vanish like so many trial balloons as Mr. Berlusconi struggles to appease the conflicting vested interests within his own fractious coalition. Rounding out the fray are the center-left opposition and labor unions, which oppose many of the measures and have called a general strike for Tuesday. This might seem the usual Italian political theater. But with the future of the euro in play, and with Mr. Berlusconi’s government weaker by the day, European leaders have become alarmed by the disarray. In an interview published Friday in an Italian business journal, the head of the European Central Bank, Jean-Claude Trichet, called the steps “extremely important.” “It is therefore essential that the objectives announced for the improvement of public finances be fully confirmed and implemented,” Mr. Trichet added. The Berlusconi government announced the new measures in mid-August, promising to eliminate the budget deficit by 2013, a year earlier than planned, in exchange for the European Central Bank buying Italian debt to help reduce the country’s borrowing costs and stave off a debt crisis. But after weeks of relative calm, yields on Italian bonds rose Friday to 5.24 percent, their highest levels since the central bank’s intervention. Economists say that higher borrowing costs could strangle the Italian economy, which the International Monetary Fund expects to grow by only 1 percent in 2011 — not enough to bring down a public debt that is 120 percent of the nation’s gross domestic product, the highest percentage in the euro-zone after Greece. Last week, the deputy director general of the Bank of Italy, Ignazio Visco, warned Italian lawmakers that the austerity package “cannot be reduced, even in light of the unfavorable evolution of the international macroeconomic picture.” In harsh statements this week, the Italian industrialists’ organization, Confindustria, called the austerity package “weak and inadequate,” saying it could place both Italy and Europe at risk. Exactly what those measures are, however, has become a moving target, with the government backing away from steps it once called crucial. The final bill is expected to be put to a vote in the Senate next week and the Lower House the following week. In recent weeks, the government called off a proposed “solidarity tax” on those who earn more than 90,000 euros a year, the equivalent of about $127,800, after opposition from lawmakers within the center-right coalition who feared it would damage their supporters. And after complaints from local politicians, it also reduced the proposed cuts to financing for local governments by 1.8 billion euros. On Monday, after a daylong meeting with his ministers, Mr. Berlusconi announced that Italy would reach its budget-cutting goal by not allowing Italians to include their time in universities or once-mandatory military service in the 40 years of social security contributions required to be eligible for a state pension. But he dropped the proposal two days later, after protests by the center-left opposition and labor unions. Analysts say the confusion is undermining Italy’s clout in Europe. “The credibility of Italy in the eyes of the European Central Bank hinges on the clarity and the certainty of its choices — exactly what it has not shown in recent days,” the political commentator Massimo Franco wrote in a front-page editorial Friday in Corriere della Sera. The reversals add up to a 5 billion-euro hole that the government must fill, said Chiara Corsa, an analyst at Unicredit in Milan. On Friday, Finance Minister Giulio Tremonti said the government would fill the hole using other means, including the revenues expected from cracking down on tax evasion. In one proposal, Italians would face jail time if a court finds they owe more than 3 million euros in back taxes, and cities would be able to post the tax returns of its citizens to discourage evasion. Confindustria criticized those measures as inadequate, “incoherent” and difficult to implement technically in Italy’s complex legal system.
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