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updated: 8/13/2011 1:57 PM

Italy to slash political jobs, merge towns in new austerity

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  • Italian Finance Minister Giulio Tremonti listens to questions during a press conference Saturday in Rome's Chigi palace, Premier's office.

      Italian Finance Minister Giulio Tremonti listens to questions during a press conference Saturday in Rome's Chigi palace, Premier's office.
    Associated Press

 
Associated Press

ROME -- Italian Premier Silvio Berlusconi predicted Saturday his government's emergency austerity package -- which raises taxes, cuts political jobs and consolidates small towns -- would quickly be passed by parliament.

Berlusconi also said the $64.8 billion package won praise by European leaders including German Chancellor Angela Merkel and by the European Central Bank.

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"I have received great appreciation," Berlusconi told the ANSA news agency, saying he had spoken with Merkel and ECB President Jean-Claude Trichet earlier in the day. "It was not just the Italian position to be in question -- the euro was in question, therefore Europe itself."

Berlusconi's comments on Merkel were confirmed by Berlin.

"The chancellor has made positive and appreciative remarks on the Italian austerity package," a German government spokesman said, declining to be named in line with government policy.

The package -- a mix of spending cuts and tax increases, including a "solidarity tax" for high-earners -- aims to calm market turmoil and make sure Italy is not the next victim of Europe's debt crisis.

It looks to raise (euro) 20 billion next year and (euro) 25.5 billion in 2013, but analysts say it is not clear if it will spur Italy's low growth.

Italy is expected to grow only by about 1 percent this year and has one of the highest debts in the 17-nation eurozone. The European Central Bank last week began buying Italian and Spanish bonds to try to stop those countries' borrowing costs from soaring.

The news measures were passed in an emergency decree approved by the Cabinet on Friday evening, after days of frantic negotiations. The decree is effective immediately but must be turned into law by parliament within 60 days.

"I believe it is going to be a safe journey," Berlusconi was quoted as saying by ANSA. He said that some difficulty may arise as lawmakers may resist cuts to administrative jobs and perks.

Those cuts are prominent in the package, which was passed at a time of widespread discontent among citizens over the generous salaries and benefits enjoyed by Italy's political elite.

Cabinet Minister Roberto Calderoli promised Saturday the number of national lawmakers, currently almost 1,000, would be halved -- though this requires a lengthy constitutional process.

He said provincial administrations for towns with less than 300,000 residents or smaller than 3,000 sq. kilometers (1,160 sq. miles) will be abolished. Provincial administrations -- in-between municipalities and regions -- are seen by many as redundant and expensive.

While the exact number will be determined by a fall census, the measure is expected to affect between 29 and 35 provincial governments, Calderoli said. Newspaper La Repubblica said these include Siena, Trieste and Prato, an important business center outside Florence.

Towns with fewer than 1,000 residents will merge with larger communities, a change that affects about 1,970 out of Italy's 8,094 municipalities, according to the government.

These cuts mean about 5,000 elected jobs will be slashed, plus several thousand related jobs, Calderoli said. The measures take effect at the next local elections.

The issue of excessive administration has been a mainstay of the Italian political debate for years. But citizens have expressed new outrage recently that Italy's political class has spared itself from cuts it demanded of others.

Some critics said the measures didn't go far enough, others said they targeted mostly local administrations.

However, national lawmakers saw their "solidarity tax" double compared to other citizens, who face a 5 percent additional tax on income above $128,250 and a 10 percent additional tax on income above $213,750.

Italy already passed a $99 billion austerity package last month, but the financial situation has deteriorated significantly since then. Under intense pressure from the European Central Bank and eurozone leaders, the government agreed to speed its goal of balancing the budget to 2013 instead of 2014, and to come up with structural reforms that stimulate investment and growth.

The new package will be taken up by a Senate commission on Aug. 22, and then be discussed by the whole house early September. It must also be approved by the lower chamber.

Berlusconi's conservative forces control both houses. While most of the opposition has criticized the package as unfair, some have praised elements of it.

Some resistance might come from outside of parliament, too, with Italy's largest union, CGIL, threatening a mobilization against what it calls as an attack on labor and the pension system.

The new package also includes plans for the liberalization of local services, such as trash collection or transport. It also seeks to open up the country's rigid labor market by allowing more room for direct negotiations between companies and unions in areas now regulated by the national contract. It promises to crack down on businesses or professionals who do not issue a receipt --a practice so common that customers now are sometimes offered either a discount or the receipt.

Some analysts fear that the belt-tightening measure will leave many Italians too cash-strapped to spend and ultimately hurt the country's growth prospects.

Italian Finance Minister Giulio Tremonti said the economic impact of some of these reforms might be significant but for now Italy is not revising its economic growth forecasts.

He also repeated his stance in favor of the creation of Eurobonds, saying such a tool would be the best solution to the crisis engulfing the eurozone.

"We wouldn't have gotten here if we had had Eurobonds," Tremonti told reporters. He called for more "integration and consolidation of public finances in Europe."

Germany rejects the idea of a new joint bond backed by all countries using the euro.

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