Europe | Italy’s economy

Grasping hands and bleeding hearts

Silvio Berlusconi’s government unveils another emergency budget

|ROME

PROMISES, promises. Silvio Berlusconi, the Italian prime minister, used to say that his government would never put its hands into taxpayers' pockets. Little wonder that his “heart was bleeding” when he announced crisis measures on August 12th that aim to eliminate Italy's budget deficit by 2013. Parliament had approved an austerity budget less than a month earlier. But it disappointed the markets. With Italian bond yields soaring, the European Central Bank was forced to step in. Its help came with strings: hence the new budget.

Among the measures, expected to add up to €45.5 billion ($66 billion) overall, are the harmonisation of tax on financial income at 20% and a “solidarity” tax on high earners that will take 5% of income over €90,000 and 10% above €150,000. Spending by ministries will be cut by €6 billion. Transfers to local government will be slashed. Other savings will be found by requiring towns of less than 1,000 inhabitants to merge; 36 provincial authorities with fewer than 300,000 inhabitants will be scrapped. Although the budget does contain meat, some measures are simply sauce, such as moving three national holidays, delaying the payment of retirement gratuities to civil servants and threatening to withhold Christmas bonuses from underperforming public employees.

Critics say that Mr Berlusconi and Giulio Tremonti, the finance minister, have missed an opportunity. The state-pension system needs overhauling; raising the retirement age sooner would have achieved this. The introduction of a wealth tax would have shown seriousness of purpose (though it would also have allowed the state to dig its hands into Mr Berlusconi's pockets). The failure to sell stakes in large public energy and engineering concerns suggests that Mr Berlusconi thinks that privatisation means raising cash without losing control. Egregious parliamentary privileges remain untouched. Most worrying, the budget ignores the knotty problem of Italy's feeble growth. Unless the economy gets moving Italy has little hope of reducing its public-debt mountain.

The new measures must be approved within 60 days. Lobby groups have already begun to urge tweaks. The budget may be watered down when it reaches parliament next month. And there is no guarantee that the markets will be any more convinced this time. Next month, when the treasury faces record bond redemptions worth €62 billion, should provide some clarity.

This article appeared in the Europe section of the print edition under the headline "Grasping hands and bleeding hearts"

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