Belt tightening
August 12, 2011
The Italian government on Friday met to approve an additional 45 billion euro ($64 billion) austerity program in an effort to settle markets.
Included in the measures are some of the key demands made by the European Central Bank (ECB), which this week agreed to buy up government bonds from Rome.
The program - discussed in a special cabinet meeting on Friday evening - includes a tax for high earners, as well as cuts to local and central government spending. It follows a 48-billion-euro deficit reduction plan agreed to in July and will need the approval of parliament.
The austerity measures are aimed at reassuring markets by balancing Italy's books a year earlier, by 2013 instead of 2014. The program comes at a time of renewed investor anxiety.
"Faced with an emergency, our country knows how to react," Junior Finance Minister Luigi Casero said in an interview with TG4 news. "We will move as quickly as possible. We hope the approval will come at the beginning of September."
Satisfied with Portuguese efforts
Earlier Friday, the European Union, ECB and the International Monetary Fund (IMF) gave the go-ahead for Portugal to receive the second part of a previously-agreed aid package. The latest tranche of the three-year 78-billion-euro bailout totals 11.5 billion euros, Lisbon having received 19.8 billion euros in May.
The three creditors released a statement revealing they were satisfied with the deficit-reducing measures put in place by the Portuguese government.
"The program is in our view on track," the three said in a statement. "The approval of the conclusions of the current evaluation justifies the unblocking of the 11.5-billion-euro tranche."
With Italy and Spain gaining a brief respite after the ECB took the decision to buy bonds, France has been forced to speed up its deficit reduction plan to assuage markets, at a time of disappointing growth.
The French economy recorded zero growth during the second quarter of 2011, according to the country's official statistics office.
Drop in demand at home
The stats office said a 0.7-percent second-quarter drop in household consumption was the chief underlying factor, in a country that is particularly reliant on domestic demand.
The news came as a surprise to analysts, who had predicted some modest improvement - after 0.9 percent growth in the first quarter of 2011, the best France had seen in five years.
French President Nicolas Sarkozy has announced emergency talks next week with German Chancellor Angela Merkel to address the financial difficulties gripping France and the eurozone.
French banks Societe Generale and BNP Paribas have been hit particularly hard in the recent market slide, amidst rumors that France could lose its top-notch AAA credit rating.
Still confident
Meanwhile, industrial production in the eurozone fell 0.7 percent in June, compared with the month before, with fewer orders from France and Germany making up the bulk of the decline.
The French government's debt-cutting plan is based on GDP growth of 2 percent in 2011, 2.25 percent in 2012 and 2.5 percent on average in each of 2013 and 2014.
However, a recent IMF report calculates growth figures at slightly reduced rates. Second-quarter GDP figures for the eurozone as a whole are out on Tuesday.
Author: Richard Connor, Darren Mara (Reuters, dpa)
Editor: Martin Kuebler