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The Globe and Mail

Berlusconi aims to fast-track budget cuts

Italian Prime Minister Silvio Berlusconi will meet unions and employers on Wednesday for talks to find ways of fast tracking some €20-billion ($28-billion) in deficit reduction measures.

Mr. Berlusconi has pledged to bring the budget into balance by 2013, a year ahead of the government's original timetable, to calm market worries over Italian public finances.

However he has yet to provide firm details of how the target will be reached and will have to overcome significant disagreements between his main negotiating partners.

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Wednesday's talks, expected to begin at 5 p.m. local time, follow growing pressure from the European Central Bank for urgent steps to restore confidence in Italian finances and prevent weeks of market turmoil from spiralling out of control.

Measures under discussion range from delaying the age at which certain categories of workers can claim a pension, to cutting the cost of running Italy's notoriously complex tangle of government institutions or imposing a so-called wealth tax.

Unions including the powerful CGIL, Italy's largest workers' federation, and the more moderate CSIL, have both ruled out touching pensions unless there are other changes including an increase in the tax rate on financial income or a wealth tax.

Mr. Berlusconi's coalition partners in the Northern League, whose voter base is in the middle class and small business sector of the prosperous north of Italy, have also opposed cuts to the pension system.

Mr. Berlusconi, who has been spending time at Villa Certosa, his luxurious private residence in Sardinia, has rejected the idea of a wealth tax, which even some in the opposition Democratic Party say would hit the middle classes.

He is expected to return to Rome for the meetings, although his attendance has not been officially confirmed. Economy Minister Giulio Tremonti and Welfare Minister Maurizio Sacconi will lead the talks.

The ECB has intervened to buy Italian government debt on the secondary market, helping to cut yields on 10-year bonds to 5.1 per cent from a 14-year record of more than 6 per cent last week.

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But the government has faced demands from unions and the centre-left opposition to detail what it has promised in return for the ECB's assistance.

On Friday, Mr. Berlusconi announced that the deficit would be eliminated a year ahead of schedule in 2013, a balanced budget amendment would be introduced into the constitution and the government would pursue steps to liberalize the economy.

Italian newspapers have reported that ECB president Jean-Claude Trichet and his designated successor, Bank of Italy governor Mario Draghi, wrote to Mr. Berlusconi last week demanding that the government step up the pace of budget measures.

Last month, the government passed a €48-billion austerity package aimed at ensuring the budget was brought into balance by 2014, but the plan was widely criticized for delaying the bulk of measures until after elections in 2013.

Bringing the deficit down from the 3.9 per cent of gross domestic product expected this year to zero in 2013 would imply bringing forward €20-billion of measures in addition to the €5.5-billion already planned for next year.

However the government may be required to take further steps if it is to meet another reported requirement of the ECB, that it reduce the deficit to 1 per cent of GDP by 2012, compared with its original target of 2.7 per cent.

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That demand was reported by business daily Il Sole 24 Ore but, like the rest of the communication between the ECB and Rome, has not been made public officially.

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