Italy's austerity package released amid flood of poor economic news

By Eric J. Lyman

ROME, July 1 (Xinhua) -- The approval of Italy's 47-billion- euro austerity package late Thursday comes amid the release of an array of poor economic indicators and a warning from a leading ratings agency that Italy's debt rating could be downgraded.

Government passed the measure during an emergency session Thursday and a declaration from Italian Prime Minister Silvio Berlusconi to say that it would allow the country to balance its budget by 2014. The plan focuses on reducing corporate taxes, reducing government travel expenses, freezing salaries of public employees, and tracking down tax evaders.

But the U.S.-based ratings agency Standard & Poor's indicated it was not convinced. The agency called Italy's plans "credible" but said the size of the package was too small to make a big difference, and it said the package might have also overestimated the impact that a series of measures aimed at drawing money from tax evaders.

In a statement Friday, S&P said there was a "one in three" chance that Italy would see its debt downgraded from its current A+ status within 24 months. A lower debt rating would require the country to pay more to make its bonds attractive, further adding to the government's debt level.

Statistics released by ISTAT, Italy's National Statistics Institute, on Friday showed that Italy's public deficit shrank in the first quarter of the year, but was still high at 7.7 percent of the country's gross domestic product far above the European Union's debt cap of 3 percent of GDP. The figure was 8.5 percent of GDP a year ago.

The tightening of the country's deficit was mostly the result of spending cuts, as the economy has so far grown just 0.1 percent this year compared to the same period in 2010, and tax revenue has actually fallen.

Unemployment figures also indicated some problems, with the country's jobless rate rising to 8.4 percent in May, a slight 0.1 percent more than the previous month. Most troublingly, a stunning 28.4 percent of Italian youth those aged 15 to 24 based on ISTAT' s definition were without work, a 0.5 percent jump compared to the previous month and near an all-time high. ISTAT said that companies struggling in the slow economy were laying off workers in order to stay afloat.

Additionally, industrial association Confindustria said Friday that business and consumer confidence both fell in June.

Despite the flood of bad economic news this week, Berlusconi said he remained upbeat, claiming the austerity package would yield strong results, helping to spark economic growth while helping to tame the country's debt levels. But he seemed to have few believers even in his own party, with lawmakers who voted in favor of the measure saying they believed the initiative was at best part of what should eventually be a wider ranging effort to confront the country's economic woes.

Opposition lawmakers were even more critical, with Pier Luigi Bersani, one of the official heads of the opposition calling the plan a "ticking time bomb" because he said it put off all the anticipated spending cuts until late 2013 or in 2014, after the next round of national elections scheduled to take place in the early months of 2013.