Italy crisis: Senate adopts austerity law

Italian prime minister's office, Rome (10 Nov 2011)
Image caption Once the austerity bill has been passed by both houses of parliament, the office of the Italian prime minister will have a new occupant

The Italian senate has adopted a package of austerity measures designed to avoid a bailout of the eurozone's third largest economy.

The package is expected to get final approval in a vote by the lower house at the weekend, paving the way for PM Silvio Berlusconi to resign.

A technocrat government possibly led by former EU commissioner Mario Monti is being debated.

On Thursday, Italy raised 5bn euros (£4.3bn) from new government bonds.

But this was at an interest rate of 6.087% to borrow the money for one year.

The senate voted by 156 to 12 in favour of the austerity package. The bill now goes to the lower house, the chamber of deputies, which will meet in special session at the weekend.

Mr Berlusconi, who lost his parliamentary majority in a vote on Tuesday, has promised to resign after the austerity measures are passed by both houses of parliament.

On Thursday, President Giorgio Napolitano - whose role is largely ceremonial - said he wished to "dispel any doubt or misunderstanding" on when the prime minister would fulfil his promise to resign.

Nervous markets

Italy's leaders are desperate to signal that they can bring the country's finances under control, says the BBC's Alan Johnston in Rome, and they are moving fast.

Mr Monti, a well respected economist, is exactly the sort of man that the money markets would like to see take charge at this time of crisis, our correspondent says.

The austerity package foresees 59.8bn euros in savings from a mixture of spending cuts and tax rises, with the aim of balancing the budget by 2014. Measures include:

  • An increase in VAT, from 20% to 21%
  • A freeze on public-sector salaries until 2014
  • The retirement age for women in the private sector will gradually rise, from 60 in 2014 until it reaches 65 in 2026, the same age as for men
  • Measures to fight tax evasion will be strengthened, including a limit of 2,500 euros on cash transactions
  • There will be a special tax on the energy sector

The Italian president has made Mr Monti a senator for life. He was welcomed into the chamber at the start of Friday's session but then left for a meeting with President Napolitano.

If the lower house completes its vote on Saturday, Mr Napolitano could accept Mr Berlusconi's resignation as early as Saturday evening.

He could then formally ask Mr Monti or another candidate to form a government of technocrats.

On Wednesday, the interest rate on 10-year Italian government bonds touched 7%, the rate at which Greece, Ireland and Portugal were forced to seek bailouts from the EU.

An EU team has begun work in Rome, monitoring how Italy plans to cut its crushing debt burden, 120% of annual economic output (GDP).

The Italian economy has grown at an average of 0.75% a year over the past 15 years.