Italians protest austerity
A general strike protesting Prime Minister Silvio Berlusconi’s budget cuts disrupted transport and production lines across Italy, stoking investor concern that the government may backslide on the austerity plan.
The general strike called by CGIL, Italy’s biggest union, comes as lawmakers in Rome begin debating the 45.5 billion-euro ($64.5 billion) package of spending cuts and tax increases passed by the government last month to prevent debt-crisis contagion. The Senate starts its session at 4.30 p.m. and may approve the legislation as soon as tomorrow, paving the way for a final vote by the Chamber of Deputies, where the government has a narrower majority.
“The government has not been up to the task of handing this crisis,” CGIL leader Susanna Camusso told demonstrators outside the Coliseum in central Rome. “This is an unfair and useless budget plan and totally irresponsible as it hits workers and pensioners.”
The premium investors demand to hold Italian 10-year bonds instead of benchmark German bunds dropped to 356 basis points as of 12:18 p.m. in Rome, after soaring to 371 basis points yesterday, the highest since before the European Central Bank started buying Italian bonds on Aug. 8. The yield fell to 5.47 percent after hitting 5.57 percent yesterday.
The strike is disrupting travel and manufacturing across Italy as the protests in the capital and other cities attract up to a million people, according to CGIL.
Work Stoppage
Fifty-eight percent of employees stayed off the job, the union said in a statement on its website, citing a survey. Innovation Minister Renato Brunetta, citing a poll of 10 percent of civil servants, said 3.1 percent of public-sector workers took part in the strike, according to an e-mailed statement.
The eight-hour strike wrecked havoc on transport on buses, trains, and airplanes. About 50 percent of trains, most of them regional, were halted, according to CGIL. Rome’s two metro lines and local commuter trains were shut down, ATAC, the company that runs them, said in a statement on its website.
Hundreds of people were stranded at airports in the capital and Milan as flights were delayed or canceled. Alitalia SpA said it canceled some domestic and international flights and Ryanair Holdings Plc said it canceled 200 flights to and from Italy, affecting some 35,000 passengers.
The austerity package, the government’s second in a month, was announced on Aug. 5 to convince the ECB to buy Italian bonds after contagion from the region’s debt crisis sent the 10-year yield to a euro-era record.
Backtracking
The government has since overhauled the package, bowing to political pressure from allies. Last week, Berlusconi dropped a “solidarity tax” on the highest earners, trimmed funding cuts to regional governments by around 1.8 billion euros and scrapped a measure to change pension-payment rules.
“There is a sense that, mainly because of the abruptness of the crisis, Italy is not ready, politically and psychologically, for what is now being demanded of it,” said Nicholas Spiro, who runs Spiro Sovereign Strategy, a London- based consulting firm specializing in sovereign-credit risk.
President Giorgio Napolitano weighed in last night, urging political parties to overcome their differences and strengthen the austerity measures. “Nobody can underestimate the alarming sign” from bond markets, he said in an e-mailed statement. “There’s still time to introduce measures in the Senate that can strengthen the efficacy and credibility” of the plan.
In a bid to respond to Napolitano’s request, the government is mulling an increase in the value-added tax rate and bringing back the extra levy on the highest incomes, daily Il Sole 24 Ore reported today, without saying where it got the information.
‘Disarray’
“The Italian government appears to be in some disarray as it has backtracked on some of the more unpopular measures,” Jim O’Neill, chairman of Goldman Sachs Asset Management, said in an e-mailed note to investors. “Many European policy makers appear to be in a state of shock about this particular twist. This is not surprising given the intensity of debate about ECB actions to support the beleaguered Italian bond market.”
Finance Minister Giulio Tremonti said on Sept. 1 that lost revenue from the solidarity tax will be compensated for by a crackdown on evasion and that the plan would still meet deficit- reduction goals.
Tremonti canceled a speech in northern Italy yesterday to rush to Rome for consultations as bonds plunged amid concern the government may weaken the austerity plan. The changes in the plan create a shortfall of at least 7 billion euros, Vladimir Pillonca, an economist at Societe Generale SA in London, estimates.
Credit Watch
Downgrades of Italy’s credit rating now “look probable,” Societe Generale economists said in a report yesterday, citing the poor economic and budgetary outlook and “uncertainties over the availability of market financing.” Standard & Poor’s and Moody’s Investors Service put the country’s credit rating on review in May and June, respectively, citing weak economic- growth prospects.
Officials at the Frankfurt-based ECB have called on Italy to stick to its budget targets. The austerity package must be “fully confirmed and implemented,” ECB President Jean-Claude Trichet said in Cernobbio, Italy, on Sept. 3.
Bank of Italy Governor Mario Draghi, who will become ECB president on Nov. 1, said the central bank’s bond buying is “temporary” and should not be taken for granted by euro-region member states. The purchases “cannot be used to circumvent the fundamental principle of budgetary discipline,” Draghi said, according to the e-mailed text of a speech in Paris yesterday.
The austerity plan may be approved in the Senate as soon as tomorrow, Anna Finocchiaro, head of the opposition Democratic Party in the upper house, said in an e-mailed statement. That could allow the Chamber of Deputies to pass the package by the end of this week, Fabio Fois, an economist at Barclays Capital in London, said in a note.