ITALY:SILVIO BERLUSCONI'S centre-right government has won a key vote of confidence in parliament, paving the way for final approval of its emergency austerity budget.
The government hopes it will calm bond markets and persuade Moody’s rating agency not to downgrade Italy’s credit status.
The prime minister’s fractious coalition, now on the front line of efforts to prevent a market meltdown threatening the survival of the euro, has won cautious approval of the budget measures from Brussels, the European Central Bank and the International Monetary Fund. But it is on notice it must set aside the divisions that have plagued the budget process over the past month and ensure that the austerity package is swiftly implemented.
Fabrizio Cicchitto, a senior official in Mr Berlusconi’s People of Liberty party, told parliament the government would propose further measures to promote growth and cut public sector debt, now over €1,900 billion.
However, Emma Marcegaglia, head of the Confindustria business association, attacked the budget, saying it relied too heavily on tax increases. An increase of one percentage point in value added tax will come into effect once the budget is signed into law.
Bond markets gave Italy a slight reprieve as the government won the confidence motion in the lower house by a relatively comfortable margin of 14 votes. Yields on the benchmark 10-year bond fell to just over 5.6 per cent, sustained by repeated purchases over the past month by the ECB.
It remains to be seen whether passage of the budget, which aims to eliminate the deficit by 2013, will be enough for Moody’s to keep Italy’s Aa2 credit rating unchanged. Moody’s warned of a possible downgrade on June 17th and its decision is expected by Saturday.