Trichet: Italy must meet austerity target

September 3, 2011 - 7:35 AM
France Libya

Italian Minister Silvio Berlusconi leaves the Elysee Palace in Paris, Thursday, Sept.1, 2011. World leaders and top international envoys started talks Thursday with Libya's rebel government about how to keep the country together and build a new democracy, after months of civil war and decades of dictatorship under Moammar Gadhafi. (AP Photo/Jacques Brinon)

CERNOBBIO, Italy (AP) — Italy's government, waffling for weeks on an emergency austerity plan, received a stern warning Saturday from the European central bank chief to promptly implement the deficit-fighting measures and stay on target.

Premier Silvio Berlusconi is caught between trying to placate allies and satisfying both nervous markets and worried European Union officials.

Even as Parliament girds to take up approval of the package of spending cuts and new taxes which he promised will add up to a euro45.5 billion ($64.86 billion) austerity package, every few days has seen some measures — including new levies on high-earners and reform of a generous pension system — dropped to appease coalition partners.

With Italy offering a spectacle of uncertainty, European Central Bank President Jean-Claude Trichet called on Rome to keep to its word and push the package, announced in early August, toward completion.

"It is essential that the target which was announced to diminish the deficit will be fully confirmed and implemented," Trichet said at an annual economics forum at a Lake Como resort. "This is absolutely decisive to consolidate and reinforce the quality and the credibility of the Italian strategy and its credit worthiness."

The outgoing central banker deemed as "extremely important" all measures to improve the "flexibility" of Italy's economy. Both industrialists and union leaders have denounced the austerity plan as relying too much on slashed spending and new taxes and offering little to stimulate the country's practically flat growth or to encourage job creation.

But the ECB's own policies were being taken to task on the sidelines of the annual Ambrosetti forum.

"We need more stimulus, we need a weaker euro," which could spur exports, complained New York University economist Nouriel Roubini. "You can't just talk about austerity." He urged the ECB to "at least send a signal there is going to be monetary easing" soon.

With Berlusconi widely considered to be distracted by a sex scandal linked to his self-acknowledged penchant for young, beautiful women, Roubini expressed concern that whatever the measures are, markets won't be reassured.

"Italy is always bickering," the economist, who in the past has warned of the specter of double-dip recession in some European countries, told reporters during a break in the closed-door forum sessions.

"Investors have lost credibility in this government," Roubini added, noting the repeated widening of the spread between Italy's bond interest rates and that of benchmark German rates.

The latest Berlusconi government proposal to achieve several billion euros in deficit reduction through a crackdown on widespread tax evasion could also rattle the markets since it's impossible to predict just how much revenue that strategy could achieve.

Earlier in the day, Italian President Giorgio Napolitano echoed Trichet's call to his country, saying the proposed measures must be quickly "translated into concrete terms" to achieve Berlusconi's goal of balancing the budget by 2013.

"In effect, we need now and in the near future from Italy clarity and certainty of intentions and of results," said Napolitano, who noted that an earlier austerity plan, in July, failed to placate nervous markets.

Napolitano urged Berlusconi's bickering government to be "coherent and courageous" in meeting the economic crisis. He grimly recalled that Italy, suffering from lackluster productivity, already was lagging before the last few years of alarming crisis dragged down much of the planet's economies.

"There is no doubt that in general the political (arena) is struggling, in the face of the tensions of the crisis and the risks to which the eurozone is exposed, and that the internal political and social equilibrium of individual countries are being put to a tough test," Napolitano said in a video hookup from the presidential palace in Rome.

Austria's former chancellor, Wolfgang Schuessel, went further in characterizing the effects of the crisis on citizens.

"This loss of confidence and trust is much more damaging than any economic data," the Austrian, a participant at the annual Ambrosetti Forum in Cernobbio, said before the participants — bankers, economists and politicians — exchanged speeches and debate.

The three-day gathering began Friday, and was marked by generally gloomy assessments of global economic prospects.