Italy's Prime Minister Silvio Berlusconi at a news conference Friday in Rome. Mr. Berlusconi pledged to bring forward austerity measures and bring Italy's budget into balance by 2013. REUTERS/Tony GentileTONY GENTILE/Reuters
Silvio Berlusconi, Italy's centre-right Prime Minister, and Giulio Tremonti, Finance Minister, held several hours of emergency talks on Friday in which they agreed to speed up a package of measures to liberalize the economy.
An official, who asked not to be named, said the measures were expected to be announced at a press conference after the close of markets following a day in which the spread between Italian and German 10-year bonds overtook that of Spain, placing Italy – the euro zone's third-largest economy – at the centre of the sovereign debt crisis.
News of the Italian plans were welcomed in Berlin, where action in both Rome and Madrid has been seen as top priority for restoring the credibility of both countries in the debt markets.
The talks in Rome, joined by Gianni Letta, cabinet undersecretary, represented the first significant departure from Mr. Berlusconi's failed efforts to ride the storm by largely blaming external forces and market "speculators" for the sharp increase in Italy's borrowing costs. The country's debt is equal to almost 120 per cent of gross domestic product.
The Italian government would continue to work on the package through August and parliament could be called back early from its summer recess to pass the necessary legislation, the official said.
Measures to be announced include a plan to amend the constitution to make a balanced budget mandatory, a second constitutional change that would force "closed professions" to liberalize services, a speeding up of welfare reforms, and other structural reforms designed to boost Italy's stagnant economy.
Cuts in the "cost of politics" – including salaries of elected officials and subsidies to political parties – were also on the agenda, which had been agreed in outline with leaders of employers' associations and trade unions on Thursday.
"This is a strong and credible plan," the official insisted. He said Mr. Berlusconi and Mr. Tremonti were trying to put their deep personal difference behind them and work together. There was also a hope that the centre-right coalition would be able to boost its slender majority in parliament by winning the support of two smaller centrist parties that had previously supported Mr. Berlusconi.
The Italian initiative came as Nicolas Sarkozy, French President and the current chairman of the Group of 20 leading economies, sought to co-ordinate a euro zone response to the turmoil in financial markets, with telephone calls to Angela Merkel, the German Chancellor, and Jose Luis Rodríguez Zapatero, Spanish Prime Minister.
The German government has already firmly dismissed a proposal from Jose Manuel Barroso, president of the European Commission, for an increase in the size of the €440-billion ($615-billion) European Financial Stability Facility – the euro zone rescue fund. Philipp Roesler, the German Economy Minister and Vice-Chancellor, described the proposal as "ill-timed."
Officials in Berlin and Paris played down expectations of any big developments from the calls. A senior French official said he did not think the EFSF would be on the agenda.
Germany has stuck stubbornly to the line all week that wider crisis-resolution measures for the euro zone have already been agreed – at the euro zone leaders' summit on July 21.
Those measures – including allowing the EFSF to buy euro zone government bonds in the secondary market, and issue "precautionary" loans to governments facing liquidity problems – require approval by the national parliaments of the 17 euro zone states. That is unlikely to be forthcoming before the end of September.
Germany has long opposed any substantial increase in the size of the EFSF, arguing that such a move could ease the pressure on euro zone governments to take essential national measures to curb their spending.
In Brussels, however, Olli Rehn, the commissioner for economic and monetary affairs, supported Mr. Barroso's call for the EFSF to be increased to contain the crisis. Calling the recent market turmoil "incomprehensible" and detached from economic fundamentals, he said: "I think experience has really shown that we need to stand ready to adapt our crisis management tools – preferably ahead of the curve – to be credible."
Copyright The Financial Times Ltd. All rights reserved.