ITALIAN Prime Minister Mario Monti is asking Italians to swallow ?30 billion ($A39.3 billion) in additional emergency economic measures even as the nation's fifth recession in a decade looms next year.
Mr Monti, whose cabinet approved the package yesterday, was due to present the plan to the legislature overnight in Rome, and parliament is expected to vote on it by Christmas. The Prime Minister has vowed "shared sacrifices" as he seeks to cut the euro zone's second-biggest debt and regain investor confidence after Italian borrowing costs exceeded the 7 per cent threshold that led Greece, Ireland and Portugal to seek aid. The yield on Italy's 10-year bonds fell to 6.68 per cent on Friday.
"The huge public debt of Italy isn't the fault of Europe, it's the fault of Italians," Mr Monti, who took over last month after Silvio Berlusconi resigned, said yesterday. "Together, we will make it."
Italian bonds rallied for the first week in eight last week amid optimism that EU policymakers might take steps to ease the crisis at a Thursday summit, when the difference in 10- year yields with German bunds fell 45 basis points to 4.55 percentage points. Still, Italy is paying the highest rates in more than a decade on its debt and offered more than 7 per cent on new bonds for the third time in a week on November 29.
Mr Monti's plan ties pensions to contributions rather than to a worker's last salary, resurrects property taxes and includes a levy on luxury goods. His task in pushing through Italy's third austerity package since July may be complicated by a recession next year and road bumps in parliament and in the streets as protesters rally over a perceived lack of fairness.
"You can't choke the economy by imposing more taxes to keep paying Mario Draghi's pension," Edward Luttwak, a senior associate at the Centre for Strategic and International Studies in Washington, said recently. "Draghi gets a 'baby pension' of about ?15,000 a month from the Italian Treasury. Only by cutting these golden pensions will the government be in a position to be more rigorous with other people's pensions."
European Central Bank president Mr Draghi's early retirement from the Treasury, which he left in 2001, is an example of the privileges enjoyed by public officials.
Mr Monti said the new package would eliminate some pension privileges. He also said that in solidarity with Italians making sacrifices, he would give up his salary as premier and finance minister.
Mr Draghi had to take a 50 per cent pay cut when he joined the ECB from the Bank of Italy, where he earned ?757,714 last year as governor. That is five times as much as US Fed chairman Ben Bernanke's salary. The average monthly gross salary for an Italian is ?2033.
"To reduce waste would require intervening decisively on the privileges that thousands of laws guarantee state workers," Italian journalist Mario Giordano said. In Sicily, civil servants can retire at age 40 with just 20 years of contributions, he said.
Italy's economy, whose growth had trailed the European Union average for a decade, would contract 0.4 per cent to 0.5 per cent next year, Deputy Finance Minister Vittorio Grilli said.
Frequently Asked Questions about this Article…
What is in Prime Minister Mario Monti’s €30 billion austerity package?
Monti’s emergency plan — approved by his cabinet and due to be presented to parliament — includes tying pensions to contributions instead of a worker’s last salary, resurrecting property taxes, introducing a levy on luxury goods, and eliminating some pension privileges. Monti has also said he will give up his salary as premier and finance minister as part of the shared-sacrifices message.
Why did Italy introduce this €30 billion package and how does it relate to investor confidence?
The package was designed to cut Italy’s very large public debt and regain investor confidence after Italian borrowing costs climbed above worrying levels (the article notes borrowing costs had exceeded the 7% threshold that triggered aid for other euro‑zone countries). Monti says the measures are meant to show shared sacrifices and reduce debt pressures that are hurting market sentiment.
What has happened to Italian 10‑year bond yields and the spread to German bunds?
According to the article, Italy’s 10‑year bond yield fell to 6.68% on a recent Friday, and the spread to German bunds narrowed by about 45 basis points to roughly 4.55 percentage points. Still, Italy was paying the highest rates in more than a decade and had offered above 7% on new bonds several times in late November.
How might Monti’s measures affect everyday investors who hold Italian government bonds?
Austerity steps that are seen as credible can help reduce borrowing costs over time, which can support bond prices. However, the article also points to ongoing volatility — Italy had recently paid double‑digit spreads and repeatedly offered high yields — and political or economic setbacks (including protests and a potential recession) could keep Italian bond markets sensitive.
What pension reforms are proposed and what could they mean for pensioners?
Monti’s plan ties pensions more to lifetime contributions rather than a worker’s final salary and would eliminate some pension privileges enjoyed by certain public officials. The changes are aimed at reducing costly ‘golden’ pensions, a move that commentators in the article say is necessary to cut waste but is likely to be politically contentious.
Does the package include new taxes that could affect the property market or high‑end spending?
Yes. The measures explicitly resurrect property taxes and introduce a levy on luxury goods, both intended to raise revenue and share the fiscal burden across different parts of the economy.
What economic outlook and risks for Italy should investors be aware of next year?
Deputy Finance Minister Vittorio Grilli told the press the Italian economy was expected to contract about 0.4% to 0.5% next year. The article also highlights risks from political friction in parliament, street protests over perceived unfairness, and the fact this is Italy’s third austerity package since July — all factors that could influence market volatility.
How can EU‑level policy moves or summits affect Italy’s borrowing costs and markets?
The article notes Italian bonds rallied for the first week in eight amid optimism that EU policymakers might take steps at an upcoming summit to ease the crisis. In short, constructive EU policy signals or coordinated action can narrow spreads and lower Italian borrowing costs, while disappointing outcomes could push yields higher again.
Call 1300 880 160
Start a chat
Schedule a call
