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"Si, Virginia", there is an economic crisis. PDF Print E-mail
Jun 06, 2010 at 12:03 AM
After months of telling Italians that Italy was in fine economic shape and better placed than almost any other European country, Italian prime minister Silvio Berlusconi has now recognized that the country is hurting and gave his blessing to a series of what most economists say are much-needed austerity measures. Ironically, the package may prove costly since the cutbacks include limits on severance pay that appears likely to stimulate a rush of unscheduled retirements by civil servants.

The budget decree containing the austerity measures was signed into law last week by Italian president Giorgio Napolitano but must be approved by parliament within 60 days.

The measures are designed to raise a total of 24 billion euros ($28 million) in 2011 and 2012, 12 million euros each year, through spending cuts and additional revenue coming primarily from a new crackdown on tax evasion. . the austerity package includes a three-year wage freeze for all state employees, including magistrates and law enforcement; reducing pay for government ministers, magistrates and high-earning state officials; cutting ministry budgets, but not across-the-board; cracking down on fraud in regard to disability pensions; reducing funding for regional and local governments; and a major effort to get unregistered real estate assets recorded on tax rolls.

Italy has thus joined Greece, Spain and Portugal in announcing more or less drastic fiscal cuts to deal with deficits that surpass the European Union limit of 3 percent of gross domestic product. After Greec's near default, these governments are also trying to reassure bond markets that despite low growth forecasts they can meet their obligations. The Italian government has said its goal is to cut its budget deficit from 5.3%last year to below 3 % in 2012.

Italy's cuts are aimed at disability payments, many of which are fraudulent, Giulio Tremonti, minister of the economy has said repeatedly. The government has promised not to raise taxes or impose new ones but its measures will hit Italy's millions of civil servants quite hard. Pay for civil servants would be frozen for three years, top-level civil servants' wages would be cut and the retirement of state employees would be delayed.

In particular, the austerity plan says that retirees will now receive their severance pay packets in stages rather than all at once as has always been the case. This measure has led hundreds of state employees - from school principals to .... - to ask for retirement immediately, which means some of the prospective savings will instead be lost as public administration is forced to pay out huge amount - estimated at €100 million - in severance pay.
Some Italians are angered by the fact that other proposed cuts - for example of MPs salaries - have been reduced from initial levels or staggered. Plans to abolish all Italian provincial administrations with populations of under 200,000 were also eliminated, and this despite the fact that for years now economists have suggested eliminated the Provinces to save money and have their function s absorbed by cities or Regions.

Sources at the premier's office said that among last-minute modifications made was the exclusion of a list of 232 cultural foundations and associations which would no longer receive public funding.

Following protests by Culture Minister Sandro Bondi, it was apparently decided to set an amount to be cut from his ministry's budget and leave it up to the minister to decide where to make the cuts.

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