Italy Grapples With Crisis: Passes Austerity Measures

By Chernitsa Polina

The Italian senate adopted the country’s austerity measures on Friday, which were first to be approved by the upper chamber and forwarded to the lower house voting on Saturday, something that may in turn pave the way for Prime Minister Silvio Berlusconi’s resignation by the beginning of next week. Former European Commissioner Mario Monti is tipped to become Italy’s new Premier but it’s still unknown who’ll replace the Prime Minister.

The Senate’s resolve to okay the austerity plans as soon as possible bewildered experts who predicted that it will take Italian lawmakers at least a month to finalize the document. It seems, however, that the determination to see “omnipotent Silvio” stepping down proved a major factor, commentators said. Berlusconi, for his part, has already promised to resign after the proposed austerity measures are passed by both houses of parliament. They include increasing the retirement age in Italy, weakening labor laws, and expanding privatization of the country’s resources, something that has already drawn people’s anger. Oleg Dushin is a Moscow-based economics expert.

“Making people believe in austerity should be a person whose approval ratings are on the rise, Dushin says, adding that if approved, the austerity measures will almost certainly infuriate Italian trade unions. The hope is that Italy will be able to tackle the crisis with the help of effective managers, who will interact with the trade unions,” he adds.

The austerity package also foresees an increase in the VAT which will be a high mountain to climb given plenty of those accused of tax evasion in Italy, Dushin goes on to say.

“Paradoxically, Italy’s public debt is the world’s second-biggest despite the fact that the official tax revenue levels in Italy are even higher than in Germany, Dushin explains, expressing hope that Rome will resolve domestic problems at the end of the day.”

With the country’s mammoth 1,9-trillion-euro debt, austerity is seen as an effective mechanism to address this problem. In 2012 alone, Italy has to pay off the bonds worth some 120 bln euro and more than 45 bln of interest. In Moscow, finance expert Alexei Vyazovksy says that any austerity package rides roughshod over a country’s economic growth.

“Cutting social spending leads to people becoming more economical, which in turn results in a decrease in corporations’ volume of sales, Vyazovsky explains. The companies start laying off employees which contributes to unemployment, the budgetary crisis and a country’s inability to pay off its public debt,” he concludes.

As for Mario Monti, he is touted by investors and Brussels as a man who may well be at the helm of the Italian government in the near future. Vladimir Belov, of the Moscow-based Institute of Europe of the Russian Academy of Sciences, points to Monti’s lacking management skills as a politician.

“A highly respected international economic figure, Monti was nominated for the post of European Commissioner in the early 2000s, Belov says, wondering whether Monti will be able to deal with the policy-making after his possible appointment as the Italian PM.”

Meanwhile, Italian President Giorgio Napolitano has endorsed Monti’s premiership bid, in a move that was preceded by Monti’s becoming a senator for life. Markets are yet to react to the latest developments in Italy, which is already on the verge of economic collapse after its long-term bonds hit the 7-percent revenue level.