Italy to meet ECB demands for reform

ITALIAN Economy Minister Giulio Tremonti pledged to meet European Central Bank demands for sweeping economic reforms in exchange for help in shielding Italy from the eurozone debt crisis.

Tremonti told a parliamentary committee that the government was ready to take steps to liberalise the economy, but was still working out detailed plans for balancing the budget by 2013.

“We have to pass a very strong fiscal adjustment package for this year and 2012 and for the following year, 2013,” he said. “The detailed numbers are currently being worked out.

“The political choice on how to re-focus efforts on 2012 and 2013 is a choice we still have to make,” he said, adding that plans would be presented at the next cabinet meeting.

Parliamentary sources said a meeting scheduled for next week could be brought forward to as early as today.

Tremonti said partners including the ECB, which wrote to the government, as well as France and Germany had “suggested and appreciated” the goal of bringing forward budget plans and had also called for extra measures to spur growth.

These included full liberalisation of local public services and the professions, more flexible job contracts, easier hiring and firing rules to free up the rigid labour market and cuts to public sector pay.

In addition, they had proposed increasing the retirement age for women employees in the private sector and a change in rules on when workers can retire based on their pension contributions.

Tremonti said the proposals on hiring and firing and cuts to public sector pay were currently not in the government’s plans, but he added that there was a need for action on freeing up the economy as well as cutting the cost of government.

However, confusion over the government’s position was increased by Prime Minister Silvio Berlusconi’s main coalition ally, who appeared to accuse the ECB of trying to topple the government with its reform demands.

Umberto Bossi, fiery leader of the powerful Northern League party, said the letter the government had received from the ECB appeared to be politically motivated.

“I fear the letter was written in Rome,” he told reporters. “I fear there is an attempt to bring down the government.”

He seemed to be referring to Bank of Italy governor Mario Draghi, who will succeed ECB President Jean-Claude Trichet this year and who was previously widely seen as the potential head of a temporary technocrat government.

Bossi’s party, whose voter base is in the small business sector and middle classes of the prosperous north of Italy, opposes any cuts to pensions.

Berlusconi, one of Italy’s richest men, has ruled out a wealth tax and the CGIL, the largest union federation, threatened strike action if cuts targeted only ordinary Italians, including pensioners.

Also yesterday, the European Commission rejected rumours France faces a credit rating downgrade after French banks’ share prices took a huge hit on fears over their exposure to Greek debt.

“We have no comment to make on rumours circulating here and there about any downgrade for such-and-such country,” senior commission spokesman, Olivier Bailly, said when asked about France being hit on the markets by the sort of speculation that has already pressured Italy and Spain.

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