Italy was bracing itself for spending cuts as the government prepared to put its accounts in order to protect the nation’s high debt load from market speculation.
Parliament is set to approve hotly contested spending cuts tomorrow, which could include pay freezes for most public workers, pay cuts for the highest-paid, and may include trims to the nation’s treasured health system.
The education minister has even suggested starting schools at the end of September instead of the middle of the month, allowing families to take longer holidays and boost tourism.
Finance Minister Giulio Tremonti has pledged to go after high salaries in the nation’s bloated bureaucracy, reportedly seeking cuts of 5% to those who earn more than €90,000 and 10% for those on more than €120,000. In addition, freezing public salaries for three years would save €3bn.
That would cut the deficit by €25bn, to 2.7% of GDP, by 2012. The measure is aimed at keeping Italy’s bond auctions healthy. Despite concern of contagion from Greece, the Treasury has had no trouble covering its bond sales in recent auctions.
Italian officials have cited the fact that about half of Italian bonds are sold domestically as reason to believe its high debt, at about 115% of GDP, is stable and less liable to fall prone to market speculation.
Such public spending cuts would be welcome by Italian workers, among Europe’s lowest paid with an average monthly salary of earning on average €14,700 a year, and the hardest hit in Italy by the crisis, which has closed factories and put many on temporary layoff with reduced compensation.