Italy approves deep cuts in national spending

Italian prime minister Mario Monti Prime Minister Mario Monti hopes to cut the budget deficit by 1.7% of GDP this year

Italy's government has agreed to cut spending by 26bn euros (£21bn, $32bn) over the next three years to plug the gap between spending and income.

The cuts, approved after seven hours of talks, include a 10% reduction in the number of civil servants and cuts to healthcare.

The cuts come as Italy struggles to keep the faith of investors.

They are increasingly asking for higher rates of return for lending to the country.

The country's budget deficit is 3.9% of gross domestic product (GDP). Italy's Prime Minister Mario Monti has a target of cutting that to 1.7% this year.

The cuts will also halve the number of provincial governments across Italy to about 50.

They aim to trim 4.5bn euros this year, with a further 10.5bn euros in 2013 and 11bn euros in 2014.

Unpopular

Trades unions have already threatened to strike against the cuts, which are to be carried out through hiring freezes rather than sackings.

Italy's public sector payroll is suspected of showing a higher number of employees than are actually carrying out work for the state.

Staffing levels will be assessed by October. Some workers will be sent home for two years on 80% of their salary before losing their jobs or being retired.

The package means the country will not now need to bring in an unpopular increase of 2% in value added tax (VAT) and will be able to funnel 2bn euros to the Emilia Romagna region, which was hit by two earthquakes in May.

The Italian economy is in its fourth recession of the past 10 years. Earlier this week, Italy's employers' group, Confindustria, forecast it would shrink by 2.4% this year.

The Italian parliament will have to approve the cabinet's plan formally within 60 days or else it will expire.

The cost of servicing Italy's debt increased by 16% to 18.7bn euros, up from 16.2bn euros in the first quarter of 2011.

The yield on Italian bonds repayable in 10 years' time - the government's implied cost of borrowing - was 5.94% on Friday, while the yield on 10-year bonds issued by Germany - seen as the safest country in the eurozone - was 1.37%.

More on This Story

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

Features

  • Alana Saarinen at pianoMum, Dad and Mum

    The girl with three biological parents


  • Polish and British flags alongside British roadsideWar debt

    Does the UK still feel a sense of obligation towards Poles?


  • Islamic State fighters parade in Raqqa, Syria (30 June 2014)Who backs IS?

    Where Islamic State finds support to become a formidable force


  • Bride and groom-to-be photographed underwaterWetted bliss

    Chinese couples told to smile, but please hold your breath


  • A ship is dismantled for scrap in the port city of Chittagong, BangladeshDangerous work

    Bangladesh's ship breakers face economic challenge


BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.