The cabinet of new Italian prime minister Mario Monti has agreed with strict austerity measures to cut the nation’s crippling debt. Italy is still having trouble raising money at viable interest rates. Last week they went as high as 7% on 1-year notes.
The FT reports that
Measures announced by Mr Monti’s cabinet include tax increases, new taxes on financial transactions, pension reforms, cuts in local government spending and the dissolution of certain government entities. The total package is to raise an additional €20bn over three years with the aim of balancing the budget by 2013.
The agreement may be too little, too late. Many experts believe a sharp recession in Italy will actually widen its deficit. Tax rate increases may be regressive and could slow business and consumer spending activity
It is also not certain that Europe will have access to a facility large enough to provide Italy what ma by hundreds of billions of dollars of loans. The IMF and ECB, which might be party to any regional bailouts have not said whether they will participate
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