Italian Cabinet Said Likely to Approve $32 Billion Austerity Package Today

By Chiara Vasarri - Dec 4, 2011 7:09 PM GMT+0700

The Italian cabinet may approve budget cuts and tax increases valued at 24 billion euros ($32 billion) as soon as today to shore up the country’s finances, two people with knowledge of the matter said.

A cabinet meeting is likely to be held as soon as this afternoon to approve austerity cuts and measures to boost growth, the people said, declining to be named because the plan is not public yet.

Italian Prime Minister Mario Monti, sworn in on Nov. 16. after Silvio Berlusconi resigned amid the deepening debt crisis, is under pressure to reassure markets as a selloff of the country’s bonds sent borrowing costs surging last month past the 7 percent threshold that led Greece, Ireland and Portugal to seek aid. Monti hasn’t yet disclosed details of the budget plan.

The budget plan will probably include an increase of the main income tax on the highest income bracket, new taxes on boats and other luxury goods and an overhaul of the pension system that will delay early retirement, the people said.

The government will also try to align the retirement age for women with that of men by 2018, the people said, adding that Monti also plans to re-introduce the so-called ICI tax on main properties to bring in at least 3.5 billion euros a year.

The Ansa newswire yesterday reported that the Italian cabinet may meet today.

Bonds Rally

Italian 10-year bonds last week rallied for the first week in eight as optimism that France and Germany are aligned on measures to stem the euro-area debt crisis boosted demand for the region’s higher-yielding assets.

Italian 10-year yields fell 58 basis points over the week to 6.68 percent, narrowing the yield difference over similar- maturity German bunds by 45 basis points to 4.55 percentage points.

Monti has met with representatives of the main political parties to build support as his government is scheduled to present the package to both chambers on Dec. 5.

“Medicine is always bitter, but sometimes it’s necessary to prevent the patient from dying,” Pierferdinando Casini, head of the Union of Centrists party, said yesterday after meeting with Monti.

The measures the new government plans to take are “severe” and necessary to “make Italy better,” the leader of Berlusconi’s People of Liberty party, Angelino Alfano, said yesterday after the talks. “Monti has been called in precisely to take decisions which are far from easy, and we are aware of this,” he said.

The government’s proposals are ‘indigestible,” and “we are ready to counter the wrong decisions” that will be made, Susanna Camusso, head of Italy’s biggest union, CGIL, said yesterday.

To contact the reporter on this story: Chiara Vasarri in Rome at cvasarri@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net