Italian Cabinet approves euro24 billion ($30 billion) in cuts necessary to avoid Greek tragedy

Italian gov’t approves euro24 billion in budget cuts

MILAN — Premier Silvio Berlusconi’s ministers have approved euro24 billion in budget cuts to protect the country from the market speculation that pushed Greece to the brink of bankruptcy.

The measures approved Tuesday seek to reduce the budget deficit to below 3 percent of GDP by 2012. The government said in a statement that the measures focused on reducing spending and fighting tax evasion.

Berlusconi and Finance Minister Giulio Tremonti were to hold a news conference Wednesday.

Italian news agencies said the measures included a freeze on public workers’ pay for three years. Other cuts under discussion included a 10 percent cut in ministers’ pay and lesser cuts to high-earning ministry employees. The measures must be approved by the Parliament.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

MILAN (AP) — The Italian government is asking citizens to make sacrifices to help get public finances in order and protect the country from the sort of market speculation that pushed Greece to the brink of bankruptcy.

The Cabinet meets later Tuesday in Rome to approve euro24 billion ($30 billion) in hotly contested spending cuts in 2011-2012 which reportedly include pay freezes for most public workers — and cuts for those highest paid — and may see trims to the nation’s revered health system.

Italy’s measures are part of a wider wave of austerity cuts under way across Europe as the continent tries to convince markets that it can manage its debt load and avoid another near-default like Greece’s.

Italy’s cuts would bring the budget deficit to below 3 percent of gross domestic product by 2012, from 5.3 percent in 2009, and soothe markets worried about the debt load of 115 percent of GDP — the highest of the 16 countries that use the euro.

In Spain, billions in cuts to civil servants’ salaries go into effect next month, and the Socialist government has frozen some retirement pensions starting next year, eliminating cost of living increases. France is raising the retirement age and Portugal is hiking taxes from June 1, among other measures.

Germany will decide next month just how to cut at least euro3 billion ($3.75 billion) from the budget, including possible fresh cuts to once-sacred unemployment benefits.

On Monday, Britain, which is not part of the euro zone, unveiled 6 billion pounds ($8.6 billion) in cuts — mostly to government payrolls and expenses.

Despite the crisis, Italy has had no trouble covering its bond issues, even if its spreads — the difference between its bond yields and the equivalent German benchmarks — have risen to 1.2 percentage points from a recent low of 0.2 to 0.3 points.

Finance Minister Giulio Tremonti was meeting with local officials Tuesday to outline the measures and seek their cooperation.

Gianni Letta, one of Premier Silvio Berlusconi’s most-trusted aides, on Monday evening stressed the importance of the measures.

“We are forced to make very heavy and difficult sacrifices, I hope in a provisional way, to save our country from the Greek risk,” Letta said in L’Aquila, according to the news agency ANSA.

Italian consumer confidence deteriorated in May, and is expected to remain weak in the next few months as households prepare themselves for the painful austerity measures, Raj Badiani of IHS Global Insight said in a note.

From a sovereign debt perspective, Badiani said that Italy is still deemed less risky than Greece, Portugal or Spain, because investors are accustomed to Italy’s high debt level and the Italian banking sector appears to be sound with a higher dependence on retail deposits than in other countries.

“Italy appears to be less vulnerable in the near term than other Club Med economies, but its protracted cycle of modest growth and high debt needs to be broken in the medium term,” Badiani said.

The impending cuts are catching many Italians off-guard, after having been assured as recently as early April by both Berlusconi and Tremonti that Italy would be able to exit the crisis without drastic measures.

“I am worried because since the euro has come into being my pension has been cut in half and now I am afraid to be penalized also by this crisis,” said Giannina Di Matteo, a 68-year-old retiree in Rome’s historic center.