Italy’s Senate is on Thursday expected to approve the centre-right government’s controversial €25bn austerity package, with Silvio Berlusconi resorting to a vote of confidence to ram through his cuts in the face of considerable dissent from within his own coalition.

The unpopular package is then expected to be taken to the lower house for final approval, again in a vote of confidence, by the end of the month.

Caught between the ire of regional governments that will bear the brunt of the cuts, and the rigidity of Giulio Tremonti, finance minister and architect of the bill, the prime minister’s midterm crisis has been deepened by his handling of a spate of corruption scandals involving the resignation of ministers, and the investigation of other senior officials.

While the government is unlikely to collapse over the emergency budget, few commentators are betting on Mr Berlusconi surviving his internal power struggles and seeing out his full five-year term in office to 2013.

Mr Berlusconi’s difficulties in parliament have compounded the image of a government struggling to lead from the front in spite of its sizeable majority.

Nicola Cosentino, a powerful politician from Naples, on Wednesday decided to resign as Treasury undersecretary rather than face a vote of no-confidence in parliament called by the opposition with support from dissidents in Mr Berlusconi’s coalition, Ansa news agency reported.

Mr Cosentino is under investigation in a case involving a suspected “secret society” of businessmen, politicians and magistrates which led to three arrests last week. He has denied wrongdoing.

Given Italy’s relatively contained budget deficit – 5.3 per cent of GDP at the end of 2009 – the proposed cuts for 2011-12 are not as drastic as those implemented by Greece, Ireland or Spain. Yet the possibility of Italy struggling to maintain payments on its debt – projected by some economists to rise to 120 per cent of GDP by the end of next year – has forced Mr Tremonti to take action.

Ben May, Italy analyst for Capital Economics, said that the government might need to implement further cuts to meet the 3.0 per cent deficit target by 2012 if economic growth came in lower than official forecasts, which he thought likely.

As €10bn of the austerity package is projected income from a crackdown on tax evasion, the bulk of the cuts – some €8bn – will fall on regional and local governments.

A wage freeze in the public sector and deferred pensions have also run into widespread opposition, while industry has lobbied against reductions in incentives for renewable energy and a rise in tariffs for insurance companies.

“It is all on the shoulders of the local authorities,” said Sandro Gozi, MP for the opposition Democratic party. “It is clear this will lead to raising taxes at the local level or a fall in the quality of services.

“Unemployment will grow and economic growth will remain at the lowest in Europe as it has done over the past decade,” he added, lamenting the lack of growth-promoting measures in the emergency budget.

The senate on Wednesday debated the government’s latest “maxi-amendment” to the package, which had become stalled by more than 1,200 proposed changes. Debate was held in fine detail, such as how cuts in education would change the size of classes with handicapped students.

Get alerts on Front page when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article