The Italian prime minister Mario Monti has said he is confident his cabinet will approve on Monday yet another plan to reduce the country’s mountain of debt.
He warned that should Italy do anything less than what is expected the consequences will be very serious for all.
As the third largest economy in the euro zone, a default by Italy would shake the already battered single-currency and rattle the global economy.
The pressures on Monti are huge. Italy’s debt is 20 per cent bigger than its entire yearly economic output. The already sluggish economy is set to shrink next year. And at 8.5 per cent, unemployment is uncomfortably high.
Monti could revive a property tax for homeowners, revamp the country’s bloated pension system. But his advisers are warning of sacrifices to come for Italians in a country considered too big to fail, but too big to bail.
euronews spoke to Professor Armando Branchini, an adviser to Italy’s prime minister.
Annibale Fracasso asked: “On Monday he will present the third plan for fiscal consolidation in less then 6 months. During his meetings in Brussels Mario Monti clearly said that the Italian situation is delicate and that they must act urgently. Do you think that Italy will be able to emerge from this situation?”
Branchini: “I’m sure Italy will be able to emerge from this situation: the budget will certainly be balanced, and the deficit quickly reduced. This third plan is important because the first two — in July and August/September — were incomplete and in part too late. We must remember that in May former Prime Minister Berlusconi was still saying that Italy was in the best shape of any European country and didn’t need any corrective intervention.
euronews: “Berlusconi’s government understood the gravity of the Italian crisis too late. Everyone was saying it was his fault if the spreads and the markets were bad, but with Monti nothing seems really different.”
Branchini: “When a fruit is very ripe it starts to become rotten. And it’s difficult to stop the rot. I think it’s essential to judge the value of the intervention both on the austerity plan and on the recovery measures. And that’s what will happen next Monday. But the premise must be the fairness of the sacrifices. The plan will ask Italians to make many sacrifices, that’s for sure. But there’s no doubt that in past years the Italian state’s finances have been somewhat irresponsible”.
euronews: “Italian Trade Unions have already said that the tension is at a peak. Is there a Greek syndrome in Italy too?”
Branchini: “I don’t think there is the risk of a Greek syndrome. I think the plan which will be presented on Monday by Monti will be a combination of rigour and growth but it will also have a deep sense of fairness. So Trade Unions could be reassured and, at the same time they could find the conditions to go back to the famous agreement between social forces which ensured the stabilization of the Italian financial situation. A situation more difficult than today’s and it allowed an economic recovery in our country”.
euronews: “Yesterday the main world central banks acted on dollar swaps to give some oxygen to the world productive system. Will that be enough to restart the economic engine?”
Branchini: “Probably not, but it was certainly a very positive decision. We are in a situation of credit restrictions and I think that this coordinated intervention of the most important central banks in the world was a clever move. I think the reduction of rates of some central banks should go in the same direction.”