Italy’s largest unions unhappy with euro24 billion in cuts aimed at avoiding Greek tragedy

Italian stocks up on budget cutbacks

MILAN — Italian stocks rose Wednesday, a day after the government’s announcement of €24 billion in cuts to prevent Italy from falling prey to the market turmoil that pushed Greece to the edge of bankruptcy. But Italy’s largest union was gearing up for a fight against the cuts.

Guglielmo Epifani, leader of the CGIL labor confederation, said the cuts penalize workers while not touching high earners and do little to stimulate the economy.

“I would have expected fair cuts, but it seems to me we aren’t there: The cuts are all concentrated on workers, the same old recipe that leaves out high earners, while there seems to be little on the stimulus front,” Epifani was quoted by the Turin daily La Stampa as saying.

Epifani raised the possibility of general strikes like the ones that have taken place in Greece.

The Milan Stock Exchange’s benchmark index traded up 2.2 percent on the day, amid generally rising European indexes.

The measures seek to reduce the budget deficit to below 3 percent of gross domestic product by 2012, down from 5.3 percent in 2009, and convince investors that Italy can handle its heavy debt load, topping 115 percent of gross domestic product. That’s nearly twice the limit of 60 percent imposed by EU rules, which haven’t been strictly enforced.

The Italian cuts are among austerity measures under way across Europe as the continent tries to soothe markets and avoid another near-default like Greece’s. Britain, Spain, Portugal, Greece and Ireland have also announced cutbacks in spending and tax increases to try to control their debt loads as Europe struggles with a general government debt crisis. The EU has had to agree to make $1 trillion available in loans and guarantees to backstop governments that may run into trouble paying.

IHS Global Insight analyst Raj Badiani called the Italian measures “an encouraging first step.”

“However, we feel this should be a forerunner of a prolonged period of better fiscal management. Italy needs to break its protracted cycle of modest growth and high debt, otherwise it will remain vulnerable to future external shocks,” Badiani said in a note.

Despite the crisis, Italy so far 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.

The government said in a statement late Tuesday that the measures, which take effect in 2011-2012, were focused on reducing public spending for both Italy’s highly paid politicians and public administration as well as on fighting tax evasion, a major revenue drain.

Italian media reported that the government sought to recoup €7 billion in unpaid taxes in the first year alone, and intended to offer local administrations a cut of 33 percent for their help in tracking down scofflaws.

Premier Silvio Berlusconi and Finance Minister Giulio Tremonti were scheduled to hold a news conference Wednesday afternoon to detail the measures.

In addition, the cuts call for a three-year wage freeze for public workers and pay cuts for highly paid public servants and ministers, the statement said. There also are measures to reduce bureaucracy, help the underdeveloped south and crackdown on those falsely receiving disability benefits.

“What we did last night is a change of direction. Enough uncontrolled costs of the state,” Berlusconi’s public administration minister, Renato Brunetta, said on Sky Italia. Brunetta said several workers at Palazzo Chigi had booed him over the measures.