Italy’s government

Italy’s Government Approves Austerity Plan Ahead Of European Summit

The Italian government approved a three-year austerity plan late Sunday, ahead of a crucial week for European leaders’ campaign to save the euro zone from collapse. “This is essential to reinforce the credibility on the Italian economy but also to regain control on the very high debt and alleviate the burden on future generations of Italians,” Vice President of the European Commission, Olli Rehn, said in a statement late Sunday. Rehn said the package, which contains spending cuts, tax hikes and pension reforms, “is crucial to keep the momentum in economic reform and in the political renewal.”

Italian Prime Minister Mario Monti, in his first big test since taking office two weeks ago, outlined a three-year plan made up of €30 billion ($39.3bn) in tax increases, spending cuts, pension overhauls and growth measures. The package, equivalent to 1.9% of Italy’s €1.6 trillion gross domestic product, will probably be followed by French-German proposals to create a new vehicle for budget policies in the euro-zone that European leaders could adopt at a summit on Thursday and Friday.

The unraveling of Italy’s bond market, one of the world’s biggest, has become the biggest single threat to the survival of the euro. If Italy is unable to refinance its huge debts in the coming year, the rest of Europe would face the challenge of trying to prop up the ailing economy along with the IMF. Most analysts believe the task would be herculean and just would not work.

“On the whole, considering that Monti’s cabinet has been in place for 18 days or so, this package amounts to a valid and rapid first step in the right direction,” said Vladimir Pillonca, an economist with Societe Generale.

German Chancellor Angela Merkel visits French President Nicolas Sarkozy in Paris on Monday to finalize a common Franco-German line ahead of the EU summit later in the week, when EU President Herman Van Rompuy is expected to present proposals for amending the EU treaty to allow stricter euro-zone governance.

US Treasury Secretary Timothy Geithner will be among those attending some of the other talks among European leaders this week, in a sign of the growing fears in Washington that the euro-zone crisis could batter a fragile global economy. Many analysts believe the next five days could be a “make-or-break” week for the euro.

Mario Monti Tapped To Head Italy’s Government

Mario Monti, a former member of the European Commission, was tapped by Italy’s president, on Sunday to form a new government, a day after the passage of a debt-cutting budget bill and the resignation of Prime Minister Silvio Berlusconi.

Monti will head a new technocratic government aimed at implementing austerity measures and other reforms to get control of Italy’s ballooning debt. President Giorgio Napolitano formally chose Monti after a day of meetings with political leaders across the spectrum, almost all of whom had pledged their support for a government of technocrats to guide Italy’s post Berlusconi future.

The leader of Berlusconi’s People of Liberty party said that the party would support a Monti government for only as long as it could fulfill its mandate to push through measures to help reduce Italy’s $2.6 trillion public debt and increase growth to keep the country competitive. The party had been pushing for early elections, and media reports said that Mr. Monti hoped to serve until the end of the current legislature in 2013.

Monti is a leading economist, Monti is among the most respected men in the country and the most admired Italians in Europe. Monti, 68, is multilingual and moves easily among European capitals. He is currently the president of Milan’s prestigious Bocconi University, he spent 10 years at the European Commission, about half in the powerful post of competition commissioner, and is one of the founders of the Brussels-based Bruegel think tank, which blends research with policy recommendations.

Monti earned an economics and management degree at Bocconi and later studied in the U.S. at Yale. Monti spent years teaching economics at several Italian universities. He is recognized as a champion of the free market and reduced government spending, who has been influential in setting European and international antitrust standards.

With a herculean task before him, Monti is expected to dive right in to get the job done. he is respected by both the left and the right which will give him the ability to negotiate some treacherous waters.

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